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GAPS ARE EXPECTED AND SHOULD NOT CAUSE ALARM, ANALYSTS SAY

Slovak trade deficit worsens

THE FOREIGN trade deficit for the first eight months of 2004 is already Sk1 billion (€30 million) higher than the trade deficit reported for all of 2003. Analysts admit that the deficit is higher than expected, but say there is no reason to fear repercussions in the financial market.
The figures released by the Slovak Statistical Office show that for the month of August alone, the trade deficit stands at Sk5.5 billion (€137 million), which increases the eight-month deficit figure to Sk25.4 billion (€760 million)
The eight-month data includes a revision of July's gap, from Sk6.3 billion to Sk6.7 billion.

THE FOREIGN trade deficit for the first eight months of 2004 is already Sk1 billion (€30 million) higher than the trade deficit reported for all of 2003. Analysts admit that the deficit is higher than expected, but say there is no reason to fear repercussions in the financial market.

The figures released by the Slovak Statistical Office show that for the month of August alone, the trade deficit stands at Sk5.5 billion (€137 million), which increases the eight-month deficit figure to Sk25.4 billion (€760 million)

The eight-month data includes a revision of July's gap, from Sk6.3 billion to Sk6.7 billion.

An analyst with Tatra banka, Róbert Prega, told The Slovak Spectator that he does not see the worsening deficit as a problem.

"We expected it. We consider it a temporary phenomenon that will probably continue through 2005. As early as 2006, however, we should see improvements," he said.

VÚB research analyst Mária Alexová agreed that the high trade deficit is not a surprise.

"An anticipated increase in imports is to blame. These are imports related to the growing investment demand and the recovery of consumer demand," Alexová told The Spectator.

She explained that the growing investment demand was based on an inflow of foreign direct investment to Slovakia, and the start of several big projects, including PSA Peugeot Citroen and the construction of industrial parks.

Alexová also said that the high trade deficit is due to changes in Slovakia's export behaviour.

"First of all, export figures are suffering from comparatively high numbers from the previous year. Moreover, the key Slovak exporter [Volkswagen] announced the shutdown of part of its production line in July and August. This offers room for improvement in the months to come when production will be running at full capacity," Alexová said.

However, according to the Statistics Office, exports for the month of August stood at Sk68.1 billion (€1.7 billion), up 4.4 percent on the year, while imports worth Sk73.6 billion (€1.8 billion) were up 15.8 percent. Still, compared with July, import volume dropped by Sk1.86 billion (€50 million).

For the first eight months, exports increased by 12.7 percent to Sk574.6 billion (€14.3 billion), and imports rose by 14.3 percent to Sk600 billion (€14.9 billion).

During the January through July period, Slovakia increased its export of transportation means by 17.6 percent year-on-year to Sk139.2 billion (€3.46 billion). The second strongest export group consisted of electronics, posting an increase of Sk102.8 billion (€2.5 billion), news wire SITA wrote.

As for imports, Slovaks were most interested in electronics, spending Sk133.6 billion (€3.3 billion) on them, up 14.5 percent year-on-year. Raw material imports increased as well, up 10.4 percent to Sk70.6 billion (€1.75 billion).

Based on the amended July figures, exports fell by 1 percent while imports grew by 2.9 percent.

"The recent data - and also significant revisions of May and July figures by the Statistical Office - indicate that the full-year deficit will be higher than we originally expected. At the end of 2004, the cumulative deficit will likely exceed Sk40 billion (€990 million), or 3 percent of GDP, compared to the 2 percent gap in 2003," Alexová told The Spectator.

Marek Gábriš, of ČSOB bank, told news wire TASR that the accrued trade balance deficit reached Sk21.4 billion (€530 million) in June, July and August, but said that it still remains in a range that is safe for the currency. As a result, he thinks there is no need to worry.

The financial markets showed no significant reaction to the release of the data.

"The financial markets have already accommodated themselves to the widening of the deficit. Therefore, we do not expect any strong depreciation of the exchange rate based solely on the worsening trade figures," VÚB analyst Alexová said.

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