SLOVAKS have been rather cautious spenders in 2011, saving their money for the possibility of worse times ahead. Developments in the global economy and double-digit unemployment in their homeland have given them reason to hold their purses tight, according to market watchers.
Looking at the prospects for the economy and the labour market for the rest of this year, observers also say that Slovak consumers will not get too many incentives to change their behaviour.
The most recent macro-economic data, released in early September, confirmed something that was already known: the country’s economy is not immune from trends in its major trading partners. Those economies are slowing – and there is little sign that they will return to faster growth any time soon.
The Slovak Statistics Office said that year-on-year growth in Slovakia’s gross domestic product (GDP) slowed in the second quarter to 3.3 percent, a 0.2 percentage point reduction from the previous quarter. The figure, released on September 6, confirmed data from the office’s August flash estimate of GDP growth. In the first quarter of 2011, the economy grew at 3.5 percent year-on-year; over the first half of 2011 Slovakia’s GDP grew by 3.4 percent compared to the first half of 2010, the Statistics Office said.
The statistics authority also expects the economy to grow for the rest of the year at a slower rate than originally assumed: 3 percent, as opposed to the prediction by the National Bank of Slovakia (NBS) in June of 3.6 percent growth.
Growing foreign demand as well as a continuing decline in domestic demand have had a significant impact on the growth of Slovakia’s economy, the Statistics Office reported.
“The economy was mostly supported by exports, which maintained their double-digit growth, while domestic consumption continued to lag behind,” said Eduard Hagara, senior research analyst with ING Bank. “Only investment activities increased, but the slowdown in global growth is a signal that such growth in investments is not sustainable.”
As expected, growth was exclusively driven by foreign demand, UniCredit Bank analyst Ľubomír Koršňák also noted.
Year-on-year growth in exports slowed from 15.8 percent to 12.4 percent but growth in imports grew less as well, with the rate falling from 11.3 percent to 9 percent, Koršňák noted.
Domestic demand fell by 0.8 percent, while consumption by the public sector dropped by 4.3 percent, the Statistics Office reported.
The government is trying to reduce expenditures and the situation in the Slovak labour market has not improved to the point that Slovaks are ready to open their wallets, Hagara said.
“The increasing savings of the population and the continuously low public consumption has not surprised us,” Poštová Banka analyst Eva Sadovská told The Slovak Spectator. “It shows that Slovaks are continuing to worry about developments in the world and at home, while being more cautious and saving for worse times.”
The caution of the population is fuelled by the relatively high unemployment rate, which currently stands at over 13 percent, she added.
Jobless rate drops, but worries persist
The unemployment rate in Slovakia in the second quarter of this year fell by 1.3 percentage points to 13.1 percent compared to the same period in 2010. It is now at its lowest level since the third quarter of 2009, the Statistics Office reported.
“Even if employment in the first half of this year showed a surprisingly significant increase, the unemployment rate remains at a high level, which means that the position of employers during wage negotiations remains strong and wages are growing only very slowly,” Hagara said.
According to the statistics authority, there were 356,500 jobless people in the second quarter of 2011, a drop of 31,800 compared to the same period of last year. The number of people with jobs continued to rise in the second quarter of 2011, increasing by 43,100 people year-on-year to a total of 2.256 million. By sector, the biggest year-on-year increases were in industry, up 26,700, and then services, up by 26,300. The construction and real estate sectors, however, continued to shed jobs: employment in the construction sector fell by 8,200 and in real estate by 5,500 year-on-year. The highest numbers of unemployed people were reported in Košice Region, at 68,700, and neighbouring Prešov Region, at 64,400.
Analysts had previously forecast that domestic consumption would not be among the main motors of the economy in the second quarter. Since the government has managed to cut public spending, market watchers also expected a drop in public-sector spending.
According to Sadovská, weaker retail revenues compared to a year before had already hinted at stagnation in household spending. Retailers did not report a year-on-year increase in revenue in any month of the second quarter.
The lower unemployment rate was mainly because of revival in industry, Sadovská said. Production close to pre-crisis levels has forced firms to re-hire employees, she added. For now, Sadovská expects unemployment to continue to fall.
“However, we do not expect any radical drop in the upcoming months,” Sadovská said. “Moreover, the already slower recovery of the labour market could be paralysed by the expected slowdown in economic growth both in the second half of 2011 and also next year.”
Pressure on wages remains
Hand in hand with the mixed news on growth, as well as with the slower recovery of the labour market, Slovaks will continue behaving based on present trends, Sadovská predicted, adding that she expects Slovaks to continue saving for worse times over the coming quarters.
The average nominal monthly salary in Slovakia rose by 3 percent year-on-year to reach €781 in the second quarter of 2011, according to the Statistics Office. That meant that real wages actually fell by 0.9 percent year-on-year. During the first six months of 2011, the average nominal monthly salary stood at €763, with real salaries falling during the same period by 0.6 percent.
The top earners were in the financial and insurance sectors, where the average monthly salary was €1,693; next highest was the IT sector, where average monthly pay was €1,482, followed by the energy and gas sector, at €1,477.
Bratislava Region boasted an average salary of €997, far above the average monthly wage for the whole country. By comparison, the average salary in Prešov Region was €592.
12. Sep 2011 at 0:00 | Beata Balogová