GDP growth beats expectations

SLOVAKIA's economy just posted one of the fastest growths over the past decade; at least that is what the Slovak Statistics Office's flash estimate for the third quarter of 2005 suggests.

SLOVAKIA's economy just posted one of the fastest growths over the past decade; at least that is what the Slovak Statistics Office's flash estimate for the third quarter of 2005 suggests.

Slovakia's gross domestic product stood at Sk365.5 billion (€9.5 billion) in the third quarter of 2005, rising by 6.2 percent year-on-year, and by 8.5 percent for common prices, the statistics office reported in its preliminary estimate.

The country posted one of the fastest GDP growth rates in Central Europe, taking analysts by surprise. Most had predicted Slovakia's GDP to rise by about 5.2 percent.

"Real GDP growth at the 6.2 percent year-on-year level outpaced market expectations by one whole percentage point," Mária Vala-chyová, research analyst with VÚB Bank, told The Slovak Spectator.

During the same period, the number of employed reached 2.099 million people, representing an annual increase of 1.1 percentage point.

The statistics office will update its flash estimates based on further available statistical and administrative figures, and release a complex report on December 8, 2005.

Valachyová said Slovakia's favourable economic results are attributable to "both the accelerating growth of domestic demand [mostly at the end of the third quarter] and to the positive contribution of net exports to GDP growth". If the latter is confirmed by detailed GDP statistics, it will be the first positive contribution of net exports since Q1 2004. In monthly merchandise trade statistics, export growth has been outpacing import growth since June 2005.

Finance Minister Ivan Mikloš interpreted the country's strong economic growth as a confirmation of the success of fiscal reforms launched by his government.

"It's clear proof that the government's economic policy is creating conditions for rapid and sustainable growth. I'm glad that GDP growth is also accompanied by rising employment, meaning that some 20,000 jobs have been created," Mikloš said.

The minister pointed out that several analysts and institutions expected lower GDP growth than suggested by the flash estimate released by the national statistics office. He hopes that the early data released by the office indicates a long-term trend rather than a fluctuation.

Analysts are interpreting the statistic office's results as a long-term trend.

"In the upcoming quarters, we should see steeper GDP growth to come, especially when Volks-wagen, the country's key exporter, resumes full production, and later with the launch of automotive production at PSA Peugeot Citroen and KIA plants. In the next two years, we could very well see GDP growth rates of up to, or even exceeding, 6 percent," Valachyová told the Spectator.

After the data was adjusted to take seasonal effects into account, the GDP of Sk219.7 billion (€5.66 billion) in fixed prices was created in 3Q of 2005, up by 5.8 percent year-on-year. The number of those employed stood at 2.085 million people after seasonal adjustments, rising by 1.3 percent year-on-year.

In its updated prognosis of macroeconomic and fiscal development, the Finance Ministry says that the country has a good chance of achieving relatively high economic growth in the 2005 to 2008 period, reaching at least a 5.4 percent per year rise on average.

"The growth rate is sustainable, reflecting qualitative changes in the economy, the growth of labour productivity and capital, increases in potential products and competitiveness," stated the Finance Ministry in mid November.

The ministry predicts GDP growth to culminate in 2007, when it should exceed 6 percent, due to the confluence of several positive external factors.

"We expect economic growth in Slovakia's important trade partners, an influx of foreign direct investments to Slovakia and a higher drawing of EU funds and contributions," said the finance minister's advisor, Peter Papanek.

The ministry expects economic growth to result in more job opportunities.

"The conservative estimate for employment growth is around 0.8 percent annually," said Papanek.

The National Labour, Social Affairs and Family Office reported that the country's unemployment rate stood at 10.93 percent in October, with 322,235 people actively seeking work. Compared with September, unemployment dipped by 0.27 percent, and by 1.79 percent year-on-year.

In late July, the World Bank estimated that the Slovak economy would reach a GDP growth rate of 5.1 percent in 2005, which would remain constant through 2006.

According to a World Bank quarterly report monitoring Central European and Baltic countries, the inflation rate in Slovakia should reach 2.8 percent in 2005. In 2006, inflation should slow to 2.5 percent.

In the 2Q of 2005, the economy grew by 5.1 percent year-on-year with a gross domestic product of Sk357.6 billion (€9.3billion).

The GDP for the first half of 2005 stood at Sk690.2 billion (€17.9 billion), and was also up by 5.1 percent year-on-year.

In November, the European Commission credited Slovakia for scoring a promising split time in the race towards euro adoption. The country is on par with Estonia, Lithuania and Slovenia in technical and administrative preparedness. Economists agree that if Slovakia keeps up its current pace, it might become the first new member of the European Union to adopt the new currency.

Besides performing best out of all new EU members, Slovakia breezed by its Central European neighbours, Hungary, Poland and the Czech Republic.

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