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Fall in industrial production may herald economic slowdown

STATISTICS for industrial production in Slovakia for June were far from rosy and may signal the arrival of another slowdown in the Slovak economy. In June, year-on-year growth in industrial production fell from 10.7 percent in May to 4.9 percent. After cleansing the figures of seasonal influences, industrial production actually fell by 2.2 percent compared to May, reversing the growth of 2.4 percent seen in that month, according to data released by the Slovak Statistics Office on August 8.

Illutsrative stock photo(Source: SME)

STATISTICS for industrial production in Slovakia for June were far from rosy and may signal the arrival of another slowdown in the Slovak economy. In June, year-on-year growth in industrial production fell from 10.7 percent in May to 4.9 percent. After cleansing the figures of seasonal influences, industrial production actually fell by 2.2 percent compared to May, reversing the growth of 2.4 percent seen in that month, according to data released by the Slovak Statistics Office on August 8.

“This is the slowest [year-on-year] growth so far this year,” Andrej Arady, macro-economist with VÚB Banka, wrote in a memo. “The general performance in industrial production was dragged down by a decrease in the production of computer, electro-technical and optical products, which were down 35.6 percent when compared with June 2010. Growth in machinery production slowed from 43.5 percent in May to 13.3 percent.”

However, while Arady perceives automotive production as maintaining its strong year-on-year growth at 30.5 percent, confirming the sector’s good condition, David Dereník of UniCredit Bank pointed to a moderate decrease from the 33.2 percent growth recorded in May. Moreover, Dereník pointed out that Slovakia’s shrinking exports, down 4 percent compared to May, is not a positive signal.

Analysts agree that the June figures may be the first sign of a deceleration in Slovakia’s economy, something which had been expected during the second half of 2011.

“The first and the biggest negative feature of the June figures is that the deceleration of growth occurred in most industrial segments, which may be one of the first indicators of the worsening sentiment in Slovakia’s biggest commercial partners, [and therefore] also in Slovakia,” Boris Fojtík, economic analyst with Tatra Banka, wrote in a memo, adding that economic growth also slowed in Germany and the Czech Republic, which are traditionally among Slovakia’s strongest trading partners.

According to Fojtík, it is becoming more and more complicated to estimate future developments, partly because of the current turbulence on world markets.

“The gradual start of production at AU Optronics certainly may help boost the electro-technical sector and moderately reduce its deeply negative results,” Fojtík wrote in his memo. “On the other hand, it is necessary to count on the holiday break at Trnava carmaker [PSA Peugeot-Citroen] being longer than normal, something which may be reflected negatively in the August results.”

Dereník also pointed to the negative developments on global stock markets. He expects that in the near future politicians will try to calm the markets as much possible to soften the impacts of uncertainty on the economy. But he does not expect any catastrophic scenarios to materialise.

“During the second half of the year we expect to see a deceleration in the Slovak economy, but not its decline,” Dereník wrote in his memo. “But a possible recession next year can no longer be completely ruled out.”

The Statistics Office will release its flash estimate of growth in the Slovak economy on Tuesday, August 16, and there are expectations that it may come as a bad surprise for most of the market, the Hospodárske Noviny daily wrote.

Statistics figures

Industrial production in Slovakia in June increased year-on-year by 4.9 percent, compared with 10.7 percent in May, according to data from the Statistics Office. Growth in Slovakia’s industrial output was thus the slowest since November 2009, when the period of crisis-triggered year-on-year falls came to an end, the SITA newswire wrote.

In 2009, Slovakia’s industrial production fell by 13.7 percent, due to a slump in foreign demand as a result of the global financial and economic crisis. Last year it returned to double-digit growth. On average during 2010, growth in industrial production reached 18.9 percent, with all sectors growing except for production of coke and petroleum products.

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