THOUGH the country’s political stage has just had a turbulent couple of months, Slovakia’s economy is among the three fastest-growing economies of the European Union and market watchers see a bright future ahead.
Employees have also found slightly larger sums on their paycheques in the third quarter of 2007, the Slovak Statistics Office confirmed in its flash estimate released in mid-November.
But since real wages did not grow faster than labour productivity, market watchers do not fear dramatic inflation pressures.
In the third quarter of 2007, the real growth of Slovakia’s GDP reached 9.4 percent, up 0.4 percentage points year-on-year, according to its estimate. From July to September of 2007, the national economy generated a gross domestic product of Sk482.5 billion (€14.6 billion), which represented a 12-percent growth in current prices, the Statistics Office said on November 30.
The figures have not surprised market watchers. They said the growth, which stood at 8.3 percent in the first quarter of 2007 and 9.3 percent in the second quarter, is still driven by consumption and exports.
“As for the structure of the GDP, the growth has been balanced, spurred by both foreign and domestic demand,” according to Martin Lenko, an analyst with the VÚB Bank.
Though the growth of foreign demand slowed down slightly more than the market expected, household consumption has had surprisingly strong growth, from 7.1 percent in the first half of 2007 to 8.3 percent in the third quarter, said Lenko.
Juraj Valachy of Tatra Banka agreed that household consumption was a surprise, but retail incomes have grown at a slower pace since the beginning of the year.
“Household consumption is mainly pushed by the growth of services, which are not included in retailers’ revenues,” Valachy told The Slovak Spectator.
According to Eduard Hagara, a research analyst with ING Bank, the increasing household consumption could eventually pose an inflation risk in the future, but this would not threaten the country’s chances of meeting the Maastricht inflation criteria.
The growth of exports slowed down from 18.1 percent in the second quarter to 8.5 percent in the third quarter of 2007.
“As the main reason for the slowdown was vacation season in the car industry, we expect a two-digit growth of exports again in the fourth quarter,” Hagara told The Slovak Spectator.
Despite the slowdown, exports grew faster than imports, so the improving trade balance has contributed 3.5 percentage points to the GDP growth, he said.
“Based on this, we see the GDP growth as quite healthy,” Hagara added.
The GDP of the European Union grew by 2.9 percent year-on-year in the third quarter, according to a Eurostat flash estimate, based on seasonally adjusted data. The United States economy posted a 2.8-percent growth year-on-year, while the Japanese economy grew 2.2 percent year-on-year, the SITA newswire reported.
Slovakia’s GDP growth makes it the third fastest-growing economy of the European Union, according to Eurostat.
Market watchers have been optimistic in their GDP forecasts for the whole year. The Slovenská Sporiteľňa bank said it is keeping its annual forecast at 8.9 percent, while Lenko, Hagara and Valachy estimate the GDP growth for the rest of 2007 will stand at 9.0 percent.
The Slovak statistics authority said it would keep its prognosis for real GDP growth at 8.8 percent for this year. It projects that in the first quarter of 2008, the growth will stand at eight percent.
Slightly fatter wallets
The average nominal monthly wages grew 6.8 percent in the third quarter to stand at Sk19,514, a 6.9-percent growth year-on-year, the Statistics Office reported. The growth of real wages stood at 4.2 percent.
Employees in the financial services sector were paid the highest average salary, at Sk36,360. That was followed by the electricity, natural gas and water supply sector, with Sk28,487, and real estate and rental services, with Sk24,272, according to the Statistics Office.
The lowest average wage was in the construction business, with Sk15,525, and hotels and restaurants, with Sk15,744. Other social services reported an average wage of Sk15,920, the Statistics Office said.
Wages grew the most, 17.3 percent, in the health care and social services sector. The mining sector also saw strong growth, with 10.7 percent, and agriculture had growth of 10.6 percent.
“Real wage growth was in line with our expectations and market expectations, although it did not justify such an acceleration of consumption, in our view,” Mária Valachyová, senior analyst with Slovenská Sporiteľňa, told The Slovak Spectator.
It will be interesting to see what stand the central bank will take on speeding up household consumption, said Lenko of VÚB Bank.
Since real wages grew much less in the third quarter than labour productivity, which reached a growth of 7.2 percent, the economy does not face any inflationary pressures from the labour market, Valachy said.
In general, companies with foreign capital have higher wages than companies without a foreign investor, he said.
However, Hagara added that Slovakia and Poland still are the cheapest countries in terms of labour force costs.
According to Lenko, labour market conditions have not really changed compared to the previous quarter. In fact, employment has grown only slightly to reach 2.0 percent, up from 1.9 percent in the second quarter.
The unemployment rate increased only slightly, from 11.1 percent in the second quarter to 11.2 percent in the third. It was 1.6 percentage points lower than in the same period a year ago.