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HIGHER-THAN-USUAL IMPORTS REFLECT ROBUST ECONOMY

Deficit no great shakes

AT FIRST glance Slovakia's trade results are worrisome. The country's 2004 foreign trade deficit topped out at Sk47 billion (€1.23 billion), which is 92 percent more than in the previous year.

AT FIRST glance Slovakia's trade results are worrisome. The country's 2004 foreign trade deficit topped out at Sk47 billion (€1.23 billion), which is 92 percent more than in the previous year.

However, analysts say there is no reason to fret as the trade deficit represents 3.5 percent of the gross domestic product. In other words, the doubled deficit does not seriously shake Slovakia's economy.

"The deficit is almost twice the previous year's deficit. Is this bad? No, it is not," Elizej Macho, an analyst with Tatra banka, told The Slovak Spectator.

"The deepening of the deficit was expected due to increased investment activities that stimulated imports. It was also due to increased household consumption putting pressure on imports," the analyst said.

The trade deficit does not mean that Slovakia failed to export goods. The country's exports in 2004, up by 11.4 percent year-on-year, totalled Sk895.2 billion (€23.46 billion) while imports, higher by 13.8 percent year-on-year, amounted to Sk942.2 billion (€24.69 billion), the Slovak Statistics Office reported.

Last year, Slovakia exported 5 percent fewer cars than in 2003 - a drop by Sk221 billion (€5.79 billion). Analysts say this drop in car exports (specifically the Bratislava-based carmaker, Volkswagen), dragged down the trade results.

"Volkswagen's reduced exports affected a number of subsuppliers. Their net negative impact compared to original estimates was more than Sk20 billion (€520 million). If automobile exports contributed positively to the trade balance like they did in 2003, the 2004 deficit would be very similar to last year's numbers," Macho said.

World markets do not view Slovakia's worsening deficit negatively because it is temporary and new capacities are creating conditions for positive development in the future.

According to Macho, the influx of foreign direct investments compensates for the trade balance deficit, which means that the currency will not reflect the negative impact either.

"This year we estimate only a mild deepening of the trade balance deficit; in 2006 the trend might get reversed, with 2007 bringing a trade surplus," Macho added.

In a memo sent to The Slovak Spectator, Volkswagen reported a trade-balance surplus of more than Sk77 billion (€2.02 billion) last year, which is a year-on-year growth of about Sk4 billion (€100 million). The firm's 2004 exports exceeded Sk172 billion (€4.51 billion), while imports were Sk95 billion (€2.41 billion).

Volkswagen is Slovakia's largest exporter, making up 20 percent of the country's total exports.

Germany, the Czech Republic, Italy, Austria and Russia remain Slovakia's important trade partners, according to the Slovak Statistics Office.

Slovakia increased exports to Germany by 3.7 percent; the Czech Republic by 15.1 percent; Austria by 17.6 percent; Poland by 28 percent; Hungary by 18.9 percent; the US by 1 percent; France by 14.7 percent; The Netherlands by 26 percent; and the UK by 51.9 percent, the news wire TASR wrote.

Exports to Italy, however, fell by 5.1 percent. Exports to EU-member states rose by 12.2 percent to stand at 85.2 percent of the total.

In 2004, Slovakia increased imports from Germany by 6.5 percent year-on-year; the Czech Republic by 5.3 percent; Poland by 25.8 percent; Italy by 3.2 percent; Austria by 11.2 percent; Hungary by 12.2 percent; and China by 22 percent.

At the same time, there was a decrease in imports from Russia, France and Spain, down by 1.2 percent, 1.7 percent and 14.6 percent, respectively.

Imports from EU-member states rose by 12.7 percent year-on-year to make up 73.6 percent of the total, while imports from OECD members rose by 7.1 percent (75.3 percent of the total).

Slovakia's highest bilateral deficits were with Russia at Sk77.7 billion (€2.04 billion), China at Sk22.4 billion (€590 million) and Korea at Sk16.3 billion (€430 million).

The highest surpluses were with Germany at Sk32.4 billion (€850 million), Austria at Sk30 billion (€790 million), and the US at Sk27.2 billion (€710 million).

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