Economic growth in the beginning of the year surprised

However, analysts expect Slovakia's economic growth to slow down this year.

Businesses in Slovakia go on to be dissatisfied with the business environment in the country. Businesses in Slovakia go on to be dissatisfied with the business environment in the country. (Source: Sme)

Slovakia's economy grew at 3.7 percent year-on-year in the first quarter of 2019, according to the flash estimate published by the Statistics Office on May 15.

It is, in fact, a slight increase given the fact that analysts expected GDP to grow by 3.6 percent. However, the growth was below the expectations of the February forecast by the Finance Ministry, the Institute for Financial Policy (IFP) claimed. The ministry forecast that the economy will rise by 4 percent in 2019.

GDP structure

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After seasonal adjustment, GDP rose by 0.9 percent in comparison with the last quarter of 2018, according to the Statistics Office.

The GDP structure will be published in June. The domestic demand is expected to play a key role in its structure, analyst Katarína Muchová of the Slovenská Sporiteľňa bank wrote in a memo.

Analyst Ľubomír Koršňák of the UniCredit bank expects the consumption of Slovak households to rise less rapidly than a year ago though, caused by worsened consumer confidence and more savings by people.

Yet, the Slovak industry, mainly the automotive industry, engineering and electrotechnics, helped GDP grow, he added.

On the other hand, the trust within the Slovak industry has dropped to a 6.5-year minimum. The metallurgy industry, the production of construction materials and plastics decreased in the first quarter of 2019, which may suggest lower production in the following quarters, Koršňák said.

Employment on the rise

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The employment rate has gone up by 1.8 percent y-o-y in the first quarter of 2019. The pace of employment growth has accelerated compared to the previous quarter, as well.

After seasonal adjustment, its pace rose by a further 0.3 percent quarter-to-quarter, according to Muchová.

"The economic growth in Slovakia remains relatively labour intense, highlighting the lack of labour force available," Koršňák wrote in a memo.

Hence, the growth puts pressure on the increase of wages and import of employees from abroad, he added.

Outlook for upcoming months

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The estimates for the following quarters is not as positive though.

"This year, we expect a slowdown in the growth of the Slovak economy to 3.4 percent given the developments of the external environment and present negative risks," said Muchová.

Among these risks, Koršňák and Muchová mentioned Brexit, global protectionism and slower economic growth in Germany, the eurozone and China.

Slovakia's economy should go on growing but not in a dynamic way. GDP growth should slow down to 3 percent in 2019 and to 2.6 percent next year, Koršňák said.

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