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An island of growth in the EU

SLOVAKIA’S economic growth of 3 percent in the first quarter of 2012 was higher than the average of other countries in the eurozone as well as the average of all the other 26 countries of the European Union. Prime Minister Robert Fico called the economic performance good news even though the upbeat numbers were anticipated since May 15 when the Slovak Statistics Office released its flash estimate of GDP growth at 3.1 percent.

Finance Minister Peter Kažimír(Source: Sme - Tomáš Benedikovič)

SLOVAKIA’S economic growth of 3 percent in the first quarter of 2012 was higher than the average of other countries in the eurozone as well as the average of all the other 26 countries of the European Union. Prime Minister Robert Fico called the economic performance good news even though the upbeat numbers were anticipated since May 15 when the Slovak Statistics Office released its flash estimate of GDP growth at 3.1 percent.

Even though the final measurement of gross domestic product in the first quarter demonstrated that Slovakia was a small island of growth amid a sea of stagnating European economies, František Bernadič, the director of macroeconomic statistics at Slovakia’s Statistics Office, told the media on June 6 that the growth dynamics of the Slovak economy are slowing.

“We can say that Slovakia is still keeping its head above water thanks to net exports,” stated Bernadič, as quoted by the TASR newswire, while adding that deceleration in growth is likely to continue.

The first quarter data showed a slight dip from the 3.4-percent growth in GDP recorded in the final quarter of 2011, and according to the Statistics Office, the GDP data indicate that the slower first quarter growth was caused by a significant deceleration in foreign demand.

Finance Minister Peter Kažimír told the media that the sustainability of Slovak economic growth will be vulnerable to several external factors linked to developments within the eurozone. Kažimír said that one negative outcome, a decline in retail revenues, is already being seen in Slovakia with retail sales falling in April after rising for three straight months during the first quarter. The minister said the April figure shows how “the [Slovak] population has reacted to external concerns”, as quoted by SITA.

A slowdown in external demand contributed to slower economic growth at the beginning of the year and another significant factor is a drop in domestic demand. Household consumption dropped by 0.1 percent in the first quarter, Bernadič told the press, due to reduced purchasing power among Slovaks after average real salaries fell in the first quarter as well as concerns about high levels of unemployment.

Kažimír said government spending had increased in the first quarter, SITA wrote.

“Today the Statistics Office officially confirmed that the quarter-on-quarter growth in government spending, which is from the last quarter of 2011 to the first quarter of 2012, increased by more than two percent and by 0.4 percent year-on-year,” stated Kažimír, as quoted by SITA, adding that this spending increase by the previous government has had a negative impact on the state budget deficit.

Slovakia’s automobile industry recorded year-on-year growth in output of 25 percent and detailed data released by the Statistics Office confirmed that car exports were a strong driver of GDP growth, SITA reported.

Though growth in overall exports decelerated to 2.7 percent year-on-year in the first quarter compared to 4.4 percent in the fourth quarter of last year, low domestic demand also pushed down the level of imports, which dropped by 1.3 percent year-on-year in the first quarter, according to Ľubomír Koršňák, an analyst with UniCredit Bank.

Koršňák reported that domestic demand in Slovakia remains weak and had a negative impact on growth in GDP in the first quarter.

“Higher domestic consumption was restricted mainly by a combination of high unemployment and a drop in real wages,” stated Andrej Arady, a macroeconomist with VÚB Banka.

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