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Economic growth slows

THE SLOVAK economy continued to grow in the third quarter of 2012, despite the wider eurozone slipping back into recession. Its gross domestic product (GDP) grew by 0.6 percent in the third quarter, maintaining the same quarter-on-quarter growth rate from the second quarter, seasonally adjusted. There was no indication of an uptick in domestic consumption or investment, meaning that foreign demand remained the main driving force propelling the economy.

THE SLOVAK economy continued to grow in the third quarter of 2012, despite the wider eurozone slipping back into recession. Its gross domestic product (GDP) grew by 0.6 percent in the third quarter, maintaining the same quarter-on-quarter growth rate from the second quarter, seasonally adjusted. There was no indication of an uptick in domestic consumption or investment, meaning that foreign demand remained the main driving force propelling the economy.

However, the year-on-year comparison showed that Slovakia experienced a mild slowdown.

Slovakia's economic growth slowed down from the second quarter figure of 2.6 percent to 2.2 percent in the third quarter, the Slovak Statistics Office revealed in a flash estimate published on November 14.

The flash estimate was in line with the forecasts of bank analysts, who predicted a slightly steeper year-on-year slowdown, to 2 percent. The Statistics Office will reveal the structure of GDP growth on December 6.

“Based on the monthly data we assume that the structure of GDP growth has not significantly changed compared with previous quarters,” Ľubomír Koršňák, an analyst with UniCredit Bank Slovakia, wrote in a memo. “Foreign demand in particular should have kept driving GDP. On the other hand, it is probable that domestic demand again affected GDP negatively during the third quarter of 2012.”

Low domestic demand kept imports low, which only served to highlight the surplus in foreign trade and the contribution of net exports to GDP growth, according to Koršňák.

The UniCredit analyst added that retail sales indicate that household consumption did not revive during the third quarter and that Slovak households remained cautious in their spending and continued to save. Investment activity by local companies does not appear to have increased either.

“Figures from the banking sector, in which the volume of loans provided to non-financial companies decreased by 4.6 percent over the year, partly indicate this,” said Koršňák.

Poštová Banka identified industrial production, or more specifically the automotive industry, as the main force propelling Slovakia’s economy.

“Industrial production managed to grow by 16 percent over the third quarter compared with the same period of 2011; carmakers even recorded growth of over three-quarters,” Poštová Banka analyst Eva Sadovská wrote in a memo. “Our industry was unambiguously the fastest growing within the whole EU. Not only did no industrial producers from any other EU economy manage to increase production by even one tenth; most countries reported a year-on-year decline.”

The eurozone falls back into recession

The eurozone slipped back into recession for the second time in four years as GDP for the third quarter contracted by 0.1 percent quarter-on-quarter following a 0.2-percent quarter-on-quarter contraction in the second quarter. A recession is defined as two successive negative quarter-on-quarter changes in constant price GDP.

The entire EU narrowly avoided falling into recession by posting an aggregate GDP increase of 0.1 percent for the third quarter. In the April-June period EU-wide GDP shrank by 0.2 percent quarter-on-quarter, the TASR newswire wrote.

Analysts have been predicting a eurozone recession since the beginning of the year. But thanks to moderate growth in the German economy and stagnation – but not contraction – in the French economy, it avoided falling into recession before the middle of the year.

In a year-on-year comparison GDP in the eurozone contracted by 0.6 percent after seasonal adjustment. EU-wide, the contraction was 0.4 percent.

Germany grew by 0.2 percent quarter-on-quarter in the third quarter, down from 0.3 percent in the second quarter. France posted growth of 0.2 percent, a positive surprise given the expectations of zero growth.

On the other hand, the recession deepened in Slovakia’s neighbours the Czech Republic and Hungary. The Czech economy contracted by 0.3 percent quarter-on-quarter in the third quarter, meaning that it has been deteriorating for five consecutive quarters. The recession there is now the longest in the modern history of the Czech Republic. The Czech Statistics Office sees the gradual reduction of domestic consumer spending and investment as the main reason behind the deepening recession, TASR wrote.

Hungary’s economy shrank by 0.2 percent quarter-on-quarter in the third quarter, its third quarterly contraction in a row.

Future outlook

Bank analysts estimate that GDP growth in Slovakia will average 2.3 percent in 2012. Last year Slovakia grew by 3.3 percent, a slowdown from the 4.2-percent growth posted in 2010.

Sadovská expects Slovak economic growth to slow further in 2013, to 2.1 percent. She does not expect this year’s expansion in the automotive industry, based on the launch of new production and new models, to be repeated.

Andrej Arady, a macroeconomist with VÚB Banka, predicts a more significant slowdown in the final quarter of 2012.

“The sentiment in the domestic economy is closer to the decline already reported by the economies of Slovakia’s trading partners,” Arady wrote in a memo.

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