No surprises in GDP growth

The main driving forces might have been the consumption of households, but also foreign trade.

Illustrative stock photoIllustrative stock photo (Source: Jana Liptáková)

Slovakia’s gross domestic product in fixed prices rose by 3.1 percent year-on-year in the first three months of 2017. After seasonal adjustment, it increased 0.8 percent compared with the previous quarter, according to the flash GDP estimate published by the Statistics Office on May 16.

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As for common prices, the GDP rose by 4.7 percent y/y to €19.292 billion.

Observers say that the flash GDP estimate brought no surprises and, in fact, met their expectations. The Slovak economy benefited mostly from the restoration of both external and domestic consumer demand, according to Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia.

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“The monthly statistics of retail and industry already indicated a strong start for the economy this year,” Koršňák wrote in a memo.

The Easter effect was postponed to the second quarter of this year. As a result, the traditional Easter slow-down in industrial production did not impacted statistics of the first quarter of the year. It will impact the second quarter however, Koršňák added.

Another factor impacting the economy was an extremely cold winter, but its total effect was rather neutral, according to Koršňák. On one hand, it postponed construction works and kept the sector in red numbers, but on the other hand it supported the energy sector and winter tourism, he explained.

Though the Statistics Office will publish more detailed information on the GDP only on June 7, Katarína Muchová, analyst with Slovenská Sporiteľňa, also expects that the main driving force was domestic demand, particularly the consumption of households. Foreign trade, however, also had a considerable impact, she added.

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“The consumption of households is positively impacted by the developments in the labour market – the drop in the unemployment rate and growth in real wages – which contributes to an increase in the disposable income of households,” Muchová wrote in a memo.

As for foreign trade, the increasing external demand was better distributed among various sectors than in previous years. Despite the weaker performance of the automotive sector, exports kept increasing, Koršňák said.

Read also: Economy boosted by demand Read more 

Developments in the labour market positive

The total number of employed people during the first three months of this year amounted to 2.3417 million, which is 2.1 percent more than in the first quarter of 2016. After seasonal adjustment, employment rose by 2 percent in annual terms and by 0.3 percent in quarterly comparison, the statistics suggest.

“Though the increase slowed down compared with the 2.6-percent annual growth in the previous quarter, the new data indicates a positive development in the labour market,” Muchová wrote.

Koršňák said that the employment numbers slightly lagged behind expectations based on the labour office statistics in the beginning of the year. The 2.1-percent growth has been the slowest since late 2015, he added.

“Behind the slower growth may be particular structural problems in the labour market, when the supply does not meet the demand, which could be confirmed by the increasing number of empty positions,” Koršňák wrote in a memo.

On the other hand, the slower growth in employment was reflected in increased labour productivity which increased by 1 percent y/y in fixed prices and by 2 percent y/y in common prices.

Economy will continue growing

As for the following months, observers expect the economy will continue growing. While Muchová predicts the growth for this year will amount to 3.1 percent, Koršňák offers a slightly better prediction, at 3.4 percent.

They agree that the GDP will be supported mostly by the consumption of households and net exports. Also, investments are expected to grow as not only public but also private projects are likely to be kicked off during the year.

“The growth risks are mostly external, but moderate for now,” Muchová said, adding that there is a certain risk of slower global growth, such as Brexit and its impact on the euro and the sentiment statistics, as well as fragile growth of some eurozone economics.

Koršňák added that the biggest challenge of this region remains the lack of qualified labour force that may slow down the growth potential in the mid-term horizon.

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