Slovak economy keeps decelerating

It is already the second negative surprise this year, analysts say.

Illustrative stock photoIllustrative stock photo(Source: SME)

The performance of Slovakia’s economy continues to disappoint analysts. After an unexpected slump in the second quarter, when the gross domestic product (GDP) rose by only 1.9 percent of the year, the numbers did not improve three months later.

The GDP in constant prices increased only 1.3 percent year-on-year. After seasonal adjustment, the GDP rose by 1.8 percent y-o-y, and by 0.4 percent in comparison with the previous quarter.

The volume of GDP at current prices in the third quarter of 2019 amounted to €24.6 billion, up by 3.4 percent compared to last year, according to the flash estimate published by the Statistics Office.

“The Slovak economy has negatively surprised for the second time this year,” Michal Lehuta, an analyst with VÚB bank, wrote in a memo. “It shows that it is significantly impacted by the economic slowdown in the eurozone, particularly in Germany.”

The numbers will be updated and specified on December 5.

What are the reasons behind the drop?

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The annual GDP growth tempo has been the slowest since 2013, analysts say.

She predicts that the higher increase was hindered by net exports. Foreign trade did not post good numbers in the third quarter of the year, with the balance being negative, amounting to -€249 million, while in the previous quarter it amounted to €261 million.

“The weakness of the German industry was reflected in the Slovak industry, which is considerably linked to Germany and the EU,” Katarína Muchová, analyst with Slovenská Sporiteľňa, wrote in a memo.

Although it was expected that at least the automotive industry, supported by the arrival of a fourth carmaker, would stabilise the weakening external demand, the opposite is true.

“The new carmaker failed to protect the Slovak automotive sector from the drop in production,” Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia, wrote in a memo.

The drop in production suggests that there might be some structural problems in the sector, he added.

The slowdown was also impacted by the slower dynamics of the revenue growth in the services sector and weaker investments, according to Koršňák.

Employment falls

Related articleThe European Commission is sceptical of Slovakia's budget Read more 

The total employment increase slowed in the third quarter of 2019. It rose by only 1 percent y-o-y, while after seasonal adjustment it accounted for 1.1 percent y-o-y and 0.2 percent q-o-q.

“The weaker economic environment impacts also the labour market and affects the employment development,” Muchová commented, adding that this is noticeable particularly in industry.

Lehuta expects that the employment increase may fall into the red in the following quarters, similarly to the years 2012 and 2013.

Outlook remains negative

Analysts do not expect a more fundamental restoration of economic growth in the following months.

“Conversely, the economic slowdown in Slovakia might have a longer-term character and not respond to the potential restoration of external demand,” Koršňák said.

Related articleAverage wage growth breaks records, due to a lack of labour and salary valorisation Read more 

The external demand is not expected to improve in the near future, though. It may even impact the services sector, which would subsequently cut economic growth in Europe and the eurozone.

While Koršňák expects the average GDP growth this year to oscillate around 2 percent, Muchová expects the economy to rise at 2.5 percent this year, and 2.3 percent next year.

The worse economic performance will probably result in the revision of several macroeconomic prognoses for this and next year, Lehuta pointed out.

“This will cause problems in the management of both companies and the state,” he added.

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Theme: Economics


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