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Slower fall is not a trend

THE GRADIENT of Slovak industry’s descent grew slightly shallower in March, at least according to the latest statistical data. However, analysts have been cautious about heralding the March results as the beginning of better times for the country’s industrial output and say that the soonest any real relief might come is the end of the year. Industrial output fell by 18 percent year-on-year (y-o-y) in March, after posting a 25.6 percent y-o-y dip in February and a 25.4 percent y-o-y decline in January, according to the Slovak Statistics Office.

THE GRADIENT of Slovak industry’s descent grew slightly shallower in March, at least according to the latest statistical data. However, analysts have been cautious about heralding the March results as the beginning of better times for the country’s industrial output and say that the soonest any real relief might come is the end of the year. Industrial output fell by 18 percent year-on-year (y-o-y) in March, after posting a 25.6 percent y-o-y dip in February and a 25.4 percent y-o-y decline in January, according to the Slovak Statistics Office.

Industrial production in the European Union dropped 18.8 percent year-on-year in March while production in the eurozone slowed by 20.2 percent, Eurostat, the European Commission’s statistical office, reported.

The numbers for Slovak industry surprised market watchers.

“Our estimate for March stood at minus 24.3 percent, so the slower-than-expected fall came as a surprise,” senior analyst with the VÚB bank Martin Lenko told The Slovak Spectator. He does not expect the improvement to continue in April.

“The reason is the possible basis effect linked to the Easter holiday, and the continuing negative confidence in industry, which in April reached its historical minimum,” Lenko said.

Nor did ČSOB Bank analyst Silvia Čechovičová predict many green shoots.

“Despite the numbers being better than expected, it is hard to say whether the trend is already changing,” Čechovičová told The Slovak Spectator. “In fact industry is still deeply in red numbers and the fall still represents a two-digit number. Optically, the better [than expected] March numbers could be related to the fact that the companies have got rid of their stocks from the beginning of the year and the time for new orders has arrived.”

The year-on-year dynamics for growth in industrial production in April were obviously moving around the three-month average of -23 percent year-on-year, according to Lenko. Industry might revive at the end of this year at the earliest, Lenko said.

As first the pro-cyclical and pro-export oriented branches and their suppliers, which in Slovakia’s case are the key electro-technical branches, the production of automobiles, the production and processing of metals and the machine industry could experience some recovery, he added. A revival in industrial production will go hand in hand with a revival in European markets, said Čechovičová.
“Slovakia has been exporting most of its production and thus the country must wait until demand revives, mainly in Germany and the Czech Republic,” Čechovičová said. “Though in the last few weeks, within the eurozone several good numbers were published, for example the indexes of consumer or business sentiment, these must be still confirmed by ‘strong’ economic numbers. We must also be careful with data on business sentiment: these are still under the level of 50 points, which separates recession from expansion.”

In Slovakia, March owed its industrial production numbers to a 20.8 percent decline in output in industrial manufacturing, a 4.1 percent fall in the production and distribution of electricity, natural gas and steam and a 1.9 percent drop in extraction of mineral raw materials, the statistics authority said.

“While looking at the structure it is obvious that the production of electro-technical products, which rose 50 percent year-on-year, experienced the strongest growth,” Čechovičová said. “A weakening decline was also visible in the production of automobiles. However, this sector was obviously helped by the installation of the car-scrapping bonus in the surrounding countries.”

The fall in revenues for the industrial branch also slowed in March but retained its double-digit numbers. The revenues in March reached €5.191 billion, which represents a 14.8 percent drop in constant prices, the Statistics Office reported.

Čechovičová said that the change in revenues in industry goes hand in hand with the change in industrial production and is fuelled by the same factors.

In March employment in industry dropped year-on-year by 13.3 percent. The number of employees also fell in the wholesale sector by 23 percent, in restaurants by 19.4 percent and in sales and repairs of motor vehicles by 10 percent, the statistics office said.

Lenko assumes that there will be further drop.

“If foreign demand does not improve, Slovak firms will have to reach for further reductions,” Lenko said.

Labour market numbers, be it the unemployment or the employment rate react to economic developments after a delay, explained Čechovičová.

“This is why I think that though we have the largest wave of layoffs behind us, the employment rate will continue to drop during the upcoming months,” she added.

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