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Slovakia’s economy keeps growing

Driven by domestic consumption the growth rate is at its highest since the final quarter of 2010.

Intensified drawing of EU funds fuels growth of Slovakia's economy.(Source: TASR)

Slovakia’s economy is maintaining its growth momentum when it increased by 3.6 percent y/y at constant prices during the third quarter of 2016, based on the flash estimate of the Slovak Statistics Office. Economic analysts see the domestic demand, positive development on the labour market and decreasing prices behind the growth which exceeded forecasts. More detailed information about the composition of the growth will be published on December 4.

“We expect that the domestic demand – consumption of households and especially investments supported by the improvement on the labour market and due to EU funds remained to be the main driving force of the growth,” Katarína Muchová, analyst at Slovenská Sporiteľňa, wrote in her memo. “The development of foreign trade was again lukewarm during the third quarter of 2015, thus we do not expect a significant influence of foreign trade on economic growth.”

The gross domestic product (GDP) increased 0.9 percent at constant prices when compared with the previous quarter and thus it maintained the growth dynamics from the previous quarter, the Statistics Office informed on November 13. The office also revised the economic growth during the previous two quarters in annualised terms, up to 3.4 percent for the second quarter and down to 2.9 percent for the first quarter.    

The volume of GDP at current prices in the third quarter of 2015 reached €20.592 billion which represented an increase of 3.3 percent in comparison with the same period of the previous year.

The Institute of Financial Policy (IFP), a government think tank, estimates that EU funds account for as much as one third of this year’s economic growth. Slovakia has accelerated drawing of residual EU funding available under the 2007-2013 programming period. This reflects also in better development in the construction sector, which should, after six years in red numbers, end the year of 2015 in the black.

“The usage of capacities in the industry at the pre-crisis level along with continuing growth of corporate loans indicate revival of investments in the private sector, that were lagging behind during the previous two quarters,” Monika Pécsyová from the IFP wrote in her memo.

The IFP expects that especially expenditures of households outside of retail sales should propel consumption of households.

“The sale and registration of cars grows robustly as well as sales in restaurants and tourism,” Pécsyová. “Thus the consumption of households should continue to profit from the positive development on the labour market and deflation.”

Total employment increased by 2.2 percent y/y to 2.275 million people during the third quarter of 2015, while consumer prices decreased by 0.6 percent y/y in October.

Mostly positive news from abroad

Economic growth among Slovakia’s main trading partners is mostly positive, according to Muchová. The German economy grew in line with expectations at 0.3 percent q/q while its growth accelerated from 1.6 percent in the second quarter  to 1.8 percent during the third quarter in annualised terms. The Czech economy exceeded expectations when it grew by as much as 4.3 percent y/y while the Hungarian economy lagged behind the forecasts of about 2.5 percent y/y, when it grew 2.3 percent.

Growth in the eurozone was slower than expected in the third quarter, when it grew by 0.3 percent in the third quarter q/q, based on the data of Eurostat.

Outlook

Economic analysts maintain or moderately increase their forecasts for Slovakia’s economy to be between 3.2-3.5 percent for all of 2015.

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