Slovakia’s GDP grew by 4.1 percent y/y in Q2 2018

Analysts see this increase as positive and exceeding expectations but expect growth to slow down.

Jaguar Land Rover plant near NitraJaguar Land Rover plant near Nitra (Source: TASR)

Slovakia's gross domestic product (GDP) rose year-on-year by 4.1 percent in the second quarter of 2018, according to a flash estimate of the economic growth published by the Statistics Office on August 14.

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When seasonal effects were taken into account, GDP was up by 3.9 percent y-o-y, and by 1 percent quarter-on-quarter, the TASR newswire quoted the Statistics Office.

GDP in April-June amounted to €22.609 billion.

Total employment stood at 2.416 million in Q2, rising by 2.1 percent y-o-y. After seasonal adjustments, total employment was 2.1 percent higher than in during the same period of 2017 and 0.5 percent higher than in the previous quarter, according to TASR.

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The Statistics Office will release updated GDP growth and employment figures based on further available data on September 7.

Analysts comment on GDP development

Monthly indeces for the 2nd quarter showed good GDP growth, Katarína Muchová, market analyst of the Slovenská Sporiteľňa bank, wrote in her memo. She added that the retail revenues slowed down the pace of growth in Q2, rising by 2.5 percent y-o-y on average (against 4.8 percent in the beginning of the year). However, good development on the labour market continues, visible in the creation of new jobs, pressures on nominal wage and considerable decline in the unemployment rate, which remains at record low levels.

Consumers’ sentiment remains relative favourable, too, Muchová continues, adding that industrial production has improved after disappointment in Q1, and increased by 3 percent, due to the automotive sector.

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The construction branch was slightly worse off, slowing down against the very dynamic first quarter. The monthly data of foreign trade suggest that net exports may contribute positively to GDP growth as well.

As the detailed structure of GDP will be published in September, we can only estimate the precise figures, Muchová writes, but she opines that it was the domestic demand that was the greatest driving force behind the growth. The strong household consumption was aided by positive development on the labour market, which contributes to the increase in the spendable income of households. Investments should have contributed positively to GDP, too, and after a weak Q1, net exports could help the GDP growth as well, but will not beat the primacy of domestic demand, according to the Slovenská Sporiteľňa analyst.

Great expectations

Muchová expects Slovakia's economic growth to continue at a good pace and reach 3.9 percent in 2018. Domestic demand should remain on top, especially in household consumption, and a positive contribution of investments to GDP growth is foreseen as well – with gradual onset of the use of EU funds. The foreign trade’s share on the economy’s growth could be boosted by the demand from Slovakia’s European partners.

Since September, the production on the new carmaker near Nitra should be launched, which could add to the exports’ increase, although a bigger impact is foreseen for the following year.

Too dependent on automotive industry?

Ľubomír Koršňák, macro-economic market analyst of the UniCredit Bank Czech Republic and Slovakia, sees the carmakers, too, as the probable force behind the acceleration of economic growth during the second quarter of 2018.

Unlike the EU's statistics, the preliminary figures for the second quarter in Slovakia have been pleasing. The country marked the fastest economic growth since the end of 2015. This was probably caused mainly by stronger exports, Koršňák opines, despite the slower growth in the eurozone – the crucial trade partner of Slovakia. The exports were mostly helped by re-start of the automotive industry. And in spite of the European new cars market not growing as fast as it did in 2015-2016, Slovak plants of carmakers this year introduced several new, innovative models, which usually spark higher demand. The analyst added that the life cycle of models produced slowed down the growth of the Slovak automotive industry last year, while speeding it up this year.

Foreign and domestic influences

Foreign trade statistics could suggest further changes in the growth structure, as foreign trade surplus has started to be grow more prominent again. Price impacts – e.g. the growing prices of oil – should have a larger influence on imports, and so the growth of trade balance surplus should be even more considerable, according to Koršňák, who sees the growth structure as shifting more to net export once again in 2nd quarter of 2018.

On the contrary, the domestic demand remains the main engine of the growth, but its contribution to the GDP growth has probably decreased compared to the beginning of this year. Combined with smaller figures in the construction industry, we can expect a slight correction in Q2 and slow down in growth of investment activities after a strong initial growth in 2018.

Construction investments shift from buildings to infrastructure, which traditionally causes larger volatility, and Q1 should only confirm this. Retail suggests that household consumption has with high probability reached its cyclic climax, leading to a gradual slow-down, the Unicredit analyst opines. But there is no reason to panic: despite slower growth, household consumption is strongly supported by the labour market. Unemployment statistics imply, however, that the labour market has hit its limits already, and it is extremely demanding to further reduce the unemployment. New jobs appear mainly in the west where there is virtually no unemployment at all, which requires imports of labour from abroad, pushing for an increase in salaries.

The estimated recovery of the automotive industry helped further accelerate economic growth, which is foreseen to continue.


One the other hand, this causes the economic growth to become dependent, once again, on a single sector. The major part of the national economy, excluding automotive, gradually hits its cyclic climax, just as it is true in most other EU economies. Thanks to the automotive sector, the Slovak economy as a whole should come to the climax of economic growth slightly later than most European countries; probably in mid-2019. In the next quarters, the GDP could grow at a pace above 4 percent.

Koršňák sees risks in the short term (one-two years), mainly in the external environment, i.e. in increasing global protectionism (with a higher-than-zero chance of a trade war between the USA and the EU, with a negative impact on Slovak car industry), and the existing threat of a hard Brexit. In a medium time span, the risks shift rather to domestic threats, namely to the success rate of transforming the existing economic model, the one based on cheap labour, to a knowledge-based economy, the analyst sums up.

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