THE FIGURES posted by the Slovak economy for August this year might have been expected to catch the attention of market watchers more – had it not been for the fact that the apparent improvement in Slovakia’s industrial performance was largely down to the already weak numbers posted in August 2008. In August 2009, industrial production fell once more – but only by 5.7 percent year-on-year.
This appeared to be a marked improvement on July’s 21.6 percent decline. However, analysts warned that the August figure masked a still-weary economy.
“This result seems pretty decent at first glance, since from the beginning of the year the slumps have been between 16.0 percent and 25.3 percent year-on-year,” Poštová Banka analyst Eva Sadovská told The Slovak Spectator. “On the other hand, back in 2008, August was already different when compared to the previous months of that year. By then, industrial production was growing by only 0.3 percent.”
As a result, the milder slump in August 2009 was to a large extent a reflection of the weaker base from August 2008, she added.
According to Vladimír Vaňo, chief analyst with Volksbank, exchange rate stability as well as the extremely accommodating monetary policy of the European Central Bank contributed to a further stabilisation of Slovak industry and narrowing of its annualised decline to 5.7 percent in August – the best annual comparison since October 2008.
“Although the base effect of last year's weaker August did play a role in mediating the annual decline of the overall figure, the encouraging signs of annual growth in an increasing number of Slovak industries corroborates the view not only of the beneficial influence of eurozone membership for Slovak business, but also its contribution to a strengthening of the Slovak competitive position within the process of geographic optimisation of production capacities of multinational corporations,” Vaňo told The Slovak Spectator.
August was certainly kinder to industry Europe-wide: industrial production grew 0.9 percent month-on-month across the eurozone, and by 0.6 percent across the whole 27-nation European Union (EU). In July, industry grew by 0.2 percent within the eurozone, and by 0.3 percent across the whole EU, Eurostat reported.
Compared to last year, production of computer, electronic and optical devices grew in August by 67 percent; chemicals by 39.6 percent and pharmaceuticals by 13 percent.
Apart from refined oil products and computers, with electronic and optical equipment, another two industries joined the trend of benefiting from the more competitive conditions of eurozone membership: chemicals and pharmaceuticals, Vaňo said.
The refining of oil grew by 2.9 percent year-on-year in the first eight months of 2009 while the production of computer, electronic and optical equipment swelled by 36.9 percent in the January-August period.
The chemical industry posted 39.6-percent growth in August year-on-year while the pharmaceutical industry recorded 13-percent year-on-year growth, according to Vaňo.
The year-on-year comparison of production of vehicles in August 2009, showing a 10.7-percent decline, was also the best result this year compared with the year-to-date cumulative decline of 39.2 percent, said Vaňo.
Other industrial branches also recorded year-on-year falls but in most cases these were milder than during the previous months of the year, according to Sadovská. For example the automotive industry as a whole dipped by only 10.2 percent in August, she added.
“Slovak car manufacturers are benefiting from their product portfolio, which is well positioned for the ongoing shift of consumer preferences towards more efficient models,” Vaňo said.
The story of cars
About a year ago, news about the limiting of production at one of Slovakia’s carmakers spread; since then there has been much talk about halted production lines or forced company holidays along with layoffs, not only in the car industry but also in other industrial branches, Sadovská said, recalling how the crisis unfolded last year.
Weakening foreign demand was a major factor behind all these developments.
As for the country’s car industry, Slovakia had become used to growing production in this area, with the automotive and the machine industries dubbed drivers of economic growth. But these export-oriented sectors almost instantly became the economy’s Achilles’ heel, Sadovská explained.
The first year-on-year slump in production and sale of vehicles hit Slovakia in October last year, although the September 2008 numbers had already foretold negative developments, said Sadovská.
“Production of cars in September 2008 grew by only 2.4 percent year-on-year while the revenues in the segment did not grow by more than 2 percent year-on-year,” said Sadovská.
Undoubtedly, the car-scrapping bonus was one of the most significant developments during the global economic downturn.
“In Slovakia the car-scrapping bonus took root faster than expected and the frenzy that it generated can hardly be overlooked,” Sadovská said. “For example in March, month-on-month, car sellers saw their revenues improve by almost by 50 percent, however year-on-year their revenues still did not reach the levels of previous years.”
According to Sadovská, the bonus has not significantly affected production of automobiles at car plants in Slovakia.
“When buying a car, people usually do not distinguish that much in which country the car was produced,” said Sadovská.
If the car-scrapping bonus helped anyone it was the carmakers which produce smaller and cheaper models. Above all, car production in Slovakia depends on demand from the wider eurozone, she added.
“Besides, it cannot be excluded that revenues were diverted from one segment to another,” Sadovská said.
Industry plays a significant role in the creation of Slovakia’s GDP; during the past five years its share has always exceeded one third.
“We assume that the weaker basis will continue to soften the fall in industrial production during the upcoming months of the year,” Sadovská told The Slovak Spectator. “We will also see what will happen once the effect of the car-scrapping bonus, or other anti-crisis measures taken by larger European economies, dissipates.”
Sadovská suggested that results of the indicator of economic sentiments also indicate uncertainty regarding the future. A moderate decline in the confidence of industry players is mostly being caused by concern about future developments.
“For the future development of industrial production in Slovakia, the key is the revival of demand in European economies – Slovakia’s largest customers,” Sadovská said.
Ján Pallo contributed to the report
19. Oct 2009 at 0:00 | Beata Balogová