'LIMPING GIANTS' would still be a suitable metaphor for Slovakia’s industrial producers, at least based on their performance in April. But Slovakia’s industrial output is not flagging alone since its Czech and Hungarian neighbours’ industrial production this year is also very bad when compared to April 2008. Market watchers said a ray of hope for this region will emerge once Germany’s industry gets back on its feet, which is not likely to happen in the next couple of months. They also say the fewer number of working days this April due to the Easter holidays had an impact on output.
Industrial production in Slovakia fell 24.8 percent year-on-year in April 2009, similar to its performance in January when it recorded a 25.6 percent fall, the Slovak Statistics Office reported. In March, industry posted a milder fall of 17.8 percent but market watchers were quick to explain that the temporary easing in that month was only due to the fact that Easter holidays were celebrated in March 2008 and last year’s production in that month was restricted due to days off work.
Industrial manufacturing output declined by 29 percent while extraction of raw materials dipped by 7.3 percent.
Production and distribution of electricity, steam, natural gas and cooled air increased by 2.6 percent, said the statistics authority. Only production of coke and refined crude oil products and production of computer, electronics and optical products have recorded year-on-year growth at 61.2 percent and 36.5 percent, respectively, said the office. Production of electric appliances recorded the largest fall at 51.9 percent, and production of transportation means dropped by 51.6 percent.
Market watchers, however, say that the reduced output in April was not a big surprise.
“The worsening of industrial production was expected in April,” senior analyst with Slovenská Sporiteľňa, Mária Valachyová, told The Slovak Spectator. “Industrial production has been dropping due to low foreign demand, which impacts mainly the automotive, metal-processing and machine industries.”
Silvia Čechovičová, an analyst with ČSOB bank, said that the main factor causing the April decline was the lower number of working days due to the Easter holidays falling in April this year.
Both Valachyová and Čechovičová said that the suspended production at the Volkswagen facility in Bratislava from April 6 to April 17 took a toll on industrial output.
“Except in the oil refining industry and in production of computer and electronic products, production has been dropping in all the industrial branches,” Čechovičová told The Slovak Spectator.
Despite the initiation of car scrapping bonuses in several Western European countries, automobile production in Slovakia did not receive an uptick, she said.
“On the contrary, production of transportation means in April dropped by almost 52 percent, which is the most this year,” Čechovičová noted.
According to Valachyová, the car scrapping bonuses in some European countries contributed to higher buyer interest in cars compared with the beginning of the year and the year-on-year drop in registration of new cars in Europe has moderated. Slovak domestic demand for new cars in April and May increased by 40 percent year-on-year, however, it had a negligible impact on Slovak carmakers since domestic purchasers buy only 5 percent of domestic production, she added.
Čechovičová and Valachyová do not have very optimistic predictions to share for Slovakia at this point. However, they say that by the end of the year prospects could brighten.
“Currently it is very difficult to predict the developments in industry since it mainly depends on economic revival in the eurozone,” Valachyová said. “Several series of data published in the United States and Europe suggest stabilisation and improvement of expectations for the future. However, evaluation of current production remains negative.”
Čechovičová also does not expect the upcoming months to bring many more positive changes and expects industrial production to continue to be deeply negative for some time. “The gradual revival of the US economy and subsequently the eurozone should contribute to easing the fall in Slovakia’s industrial output but it will still take some time,” Valachyová added. “We assume that industrial production will return to the levels of 2008 only during next year.”
According to Čechovičová, Slovakia has to wait for improving industrial production in Germany and then hope will emerge for Slovakia as well.
“Better numbers are expected at the end of the year also because of a lower comparison base,” Čechovičová said.
Neighbouring countries are experiencing developments very similar to Slovakia’s, Valachyová said, while Čechovičová added that these developments are not very positive.
Preliminary data for the Czech Republic indicate that its industrial production declined in April by 23.2 percent in comparison to a 17-percent fall in March while in Hungary industrial production sank by 27.1 percent in April following a drop of 15.6 percent in March, said Čechovičová.
The situation is relatively more favourable in Poland where industrial production dipped by only 12.4 percent in April and fell by a neglible 1.9 percent in March, she added.
“The main cause of the dip was the same as in Slovakia: a lower number of working days in April due to the Easter holidays,” said Čechovičová.
As for increases in unemployment, Valachyová expects that for the whole year about 130,000 unemployed will register with the labour offices.
“The unemployment rate is an indicator which reacts with a little delay to changes in the economy,” Čechovičová said. “This is why I think that the unemployment rate will grow further and at the end of the year, by the Statistics Office method, it should reach 12.5 percent.”