Slovakia’s economic growth slowed down during the third quarter of 2016, lagging behind expectations of analysts. They see the high comparison base, decline in construction, production and lower drawing of EU funds behind the development. Yet analysts forecast a high growth rate for the whole year.
“The flash estimate of the GDP growth for the third quarter was a negative surprise,” Boris Fojtík, economic analyst with Tatra Banka wrote in his memo, adding that the market expectation was 3.3 percent.
In the third quarter of 2016, the gross domestic product (GDP) grew at constant prices by 3 percent compared to the same quarter of 2015. Thus falling from the 3.8-percent growth rate recorded during the second quarter of 2016, and increasing at its slowest pace since the fourth quarter of 2014.
After seasonal adjustment, GDP rose by 3.2 percent as compared to the third quarter of 2015 and by 0.7 percent in comparison with the previous quarter. The volume of GDP at current prices in the third quarter of 2016 reached €21.26 billion, representing an increase of 2.4 percent in comparison with the same quarter of 2015, according to the flash estimate of the Slovak Statistics Office published on November 15.
The overall structure of the GDP will be published only on December 6. But based on the development of monthly indicators, Fojtík assumes that the growth was propelled mostly by domestic as well as foreign demand, but it was the external demand that declined when compared with the second quarter. This is reflected also in the growth of industrial production, which grew 2.4 percent y/y during the third quarter compared with 6.4 percent y/y during the second quarter.
“But the main negative feature was the development in construction,” wrote Fojtík, who links its drop of 15.9 percent y/y with the decline in investments.
Andrej Arady, an analyst with VÚB bank, sees behind the slowdown especially the high comparison base from 2015,while analyst Katarína Muchová of Slovenská Sporiteľňa also points to lower drawing of EU funds than during the same period of 2015.
Slovakia’s economy registered the second highest economic growth rate in the eurozone compared with the previous quarter, while only Spain posted a higher rate of 3.2 percent y/y. The eurozone grew 1.6 percent y/y during the third quarter. But Slovakia’s main trading partner, Germany, registered a moderate slowdown, to 0.2 percent q/q, compared with 0.4 percent q/q during the second quarter of 2016. Compared with the third quarter of 2015, the German economy grew by 1.7 percent.
Employment keeps growing
On the other hand, the strong growth of employment is pleasing news. Employment has been increasing by more than 2 percent y/y over the past several quarters. During the third quarter of 2016 it grew 2.4 percent y/y.
Overall employment increased despite the nearly unchanged number of jobseekers. Fojtík indicates that it may be due to the increased number of foreigners working in Slovakia.
Analysts expect that the growth slowdown will only be temporary and recall that the start of construction of the Bratislava ring road and the brand new plant of the British carmaker Jaguar Land Rover near Nitra might boost growth.
“The start of new investments in combination with positive sentiment in the eurozone and growing domestic demand should bring a moderate increase in GDP growth,” wrote Fojtík.
VÚB expects that Slovakia’s economy will maintain a growth rate above 3 percent throughout 2017-2019.
“So far, development is in line with our estimate for 2016 which we leave at 3.3 percent,” Arady wrote in his memo, adding that the final quarter of 2016 might be a bit better, but last year’s high comparison base, partially inflated by drawing of EU funds, will be more visible.
Slovenská Sporiteľňa also leaves its estimate for the whole year at 3.3 percent.
In the meantime, the European Commission forecasts “robust growth” for Slovakia and an improvement in employment. Following the successful year of 2015, growth exceeding 3 percent of GDP is forecast also for 2016 and the following two years, mainly fuelled by household consumption and, to a lesser extent, investments and net exports. The EC released its autumn forecast for the next three years on November 9.
16. Nov 2016 at 15:10 | Jana Liptáková