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Economy delivers upbeat numbers

METAPHORS like ‘recovering patient’ or ‘convalescent Tatra tiger’ need no longer be employed when describing Slovakia’s economy: it has almost completely made up for the losses incurred during the global economic downturn, according to the Slovak Ministry of Finance. The ministry was responding to the latest flash estimate of growth in the country’s gross domestic product (GDP) for the last quarter of 2010 as well as for the whole of last year, as reported by the national statistics authority.

METAPHORS like ‘recovering patient’ or ‘convalescent Tatra tiger’ need no longer be employed when describing Slovakia’s economy: it has almost completely made up for the losses incurred during the global economic downturn, according to the Slovak Ministry of Finance. The ministry was responding to the latest flash estimate of growth in the country’s gross domestic product (GDP) for the last quarter of 2010 as well as for the whole of last year, as reported by the national statistics authority.

Market watchers said Slovakia owes its upbeat numbers to recovery in its largest trading partners, noting that household consumption has not completely shaken off the switch to saving induced by the crisis.

The economy grew by 4 percent year-on-year in 2010, while GDP grew 3.5 percent in the final quarter of 2010 year-on-year, the Slovak Statistics Office reported on February 15. In 2009, when the global downturn took its main toll on Slovakia, the economy contracted by 4.7 percent.

The last quarter’s 3.5-percent growth rate was the slowest pace of all the quarters of last year: in the third quarter GDP grew at 3.8 percent; in the second quarter at 4.2 percent, while the rate for the first three months was 4.7 percent year-on-year. The statistics authority will produce a more detailed estimate on March 3.

The ministry had some rosy predictions too for the upcoming period: GDP will surpass the level of the pre-crisis boom as early as the current quarter, it predicted.

“Slovakia has one of the fastest growing economies,” the ministry said in a release.

Yet the numbers brought neither shocks nor surprises to Slovakia’s community of market watchers, whose collective blood pressure did not jump while inspecting GDP growth numbers over the past four quarters.

“The flash estimate of 3.5 percent has not surprised us,” Eva Sadovská, analyst with Poštová Banka, told The Slovak Spectator, adding that she had expected growth of 3.6 percent.

A deceleration in GDP growth was expected in the last quarter of 2010 due to the basis effect from 2009, when in the final quarter the economic contraction was at its slowest, Sadovská said.

Though detailed data on the development of GDP are not yet available, Sadovská believes that during the last quarter foreign demand was pulling Slovakia’s economy along.

“It benefited mainly from economic growth in Germany, which has been the fastest since the unification of Germany,” Sadovská said. “Industrial production managed to return to pre-crisis levels thanks to foreign demand.”

According to initial estimates, in the fourth quarter the German economy grew by 0.4 percent quarter-on-quarter while the Czech economy had growth of 0.5 percent in the same period, said Mária Valachyová, analyst with the Slovenská Sporiteľňa, who noted that slightly higher growth rates had been forecast.

“The slowdown at the end of the year pertains to several countries and to a certain degree it might also be linked to the unusually unfavourable weather,” Valachyová noted.

Ľubomír Koršňák, analyst with UniCredit Bank, said that the reported increase in the growth of bank loans at the end of last year suggests that the investment activities of domestic enterprises might be recovering.

“However, it most probably undersigned higher imports, which should reduce the contribution of net exports to GDP growth,” Koršňák suggested.

Koršňák predicted that household consumption will continue to dip and suggested that consumer confidence worsened late last year following the announcement of the government’s fiscal austerity package.

“We do not have any illusions about domestic demand since unemployment has been pretty high, which has hindered consumer demand,” Sadovská said, adding that retail revenues, which did not post any year-on-year growth during any of the months of the last quarter, proved this trend.

This year Slovakia expects its economy to grow by 3.5 percent, slower than last year, noted Sadovská. She said that the heralded consolidation of the public finances might be behind the development.

“However, our growth will be due to foreign demand,” Sadovská said. “Domestic demand, influenced by the high unemployment rate, will remain under pressure.”

Koršňák expects the country’s economic growth rate in 2011 to slow to 3.1 percent, and that for at least the first half of the year GDP growth will be fuelled by the performance of Slovakia’s most important trading partners, mainly Germany, which should be accompanied by reviving investment activity among domestic enterprises.

Valachyová, by contrast, foresees economic growth in 2011 being similar to last year, with GDP rising by up to 4 percent. Along with industry, which will obviously remain the driver of the economy, trade and services might revive as well, she added.

“The start of production at the new facilities in the car and electro-technical industries should contribute as well,” Valachyová said.

The Ministry of Finance commented that the flash estimate of domestic employment at the end of last year was a pleasant surprise since the fall in the number employed bottomed out.

The employment rate grew by 0.5 percent year-on-year in the final quarter of 2010, with a total of 2.172 million people employed. It increased 0.3 percent quarter-on-quarter, the Statistics Office reported. When seasonal influences are included, employment grew by 0.4 percent year-on-year to reach 2.163 million.

Andrej Arady, macro-economist with VÚB Banka, noted that the employment rate over the previous seven quarters had been continuously dropping, but that the rate of decline since the last quarter of 2009 had slowed.


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