The growth in Slovakia's foreign trade deficit slowed in June but market analysts said this was more a short-term phenomenon than a reversal of long-term negative developments.
The Slovak Statistical Office (ŠÚSR) released figures on July 30 showing that the trade gap widened to 32.57 billion Slovak crowns (Sk) in the first half of 1997, up 2.95 billion Sk from a 29.62 billion Sk deficit in the first five months.
The statistics revealed that cumulative imports totalled 177.33 billion Sk, a year-on-year increase of 12.6 percent, while exports during the same period rose by 12.9 percent to 144.76 billion Sk. The trade gap for June alone was 2.95 billion Sk, down from 4.21 billion Sk recorded in May.
"The small deficit increase in June is better than was generally expected," said one foreign bank analyst. "But it is certainly too early to celebrate any reversal of the trade trend, since the June slowdown was only a natural move after the rapid May deficit increase," the analyst continued, adding the shortfall was likely to accelerate later in the year, especially in the last quarter. Other analysts concurred, saying they saw little room for any radical improvement in Slovakia's trade balance in the coming months.
"I'm afraid the June figures do not indicate a longer-term improvement, and there are several factors behind our expectations of a further widening in the trade deficit," said ING Barings' analyst Martin Barto.
On the export side of the ledger, an expected slowdown in industrial output due to the summer holidays and current high interest rates are the main factors expected to prevent any dramatic growth.
On the other hand, a large portion of unavoidable imports, such as raw materials, will prevent major cuts in imports. Fossil fuels and mineral oils accounted for the largest part of imported goods, totalling 31.22 billion Sk, an increase of 17.9 percent year-on-year.
Technology imports, mainly equipment for upgrading the aging Jaslovské Bohunice nuclear power plant and for completing the Mochovce nuclear power facility, totalled 28.29 billion Sk, up 20.2 percent year-on-year. The first block of the Mochovce plant should be completed by June 1998 and the second by March 1999.
"The country will have to continue buying oil and gas from abroad, and it will also have to keep up quite large technology imports [not only] for the Mochovce plant [but also for the telecommunications] GSM network," Barto said. "We think the full annual deficit will probably be higher than official forecasts," he added.
The government has said the 1997 trade gap should not exceed last year's deficit of more than 60 billion crowns. But that prediction is disputed by at least some analysts who peg it higher. "I would say the full year figure will be above 70 billion crowns, maybe around 75 billion," one foreign analyst said.
If that's true, the deficit would eat up between 11-12 percent of Slovakia's projected GDP for 1997, which is more than double the National Bank of Slovakia's (NBS) hope of keeping the deficit at around 5 percent of GDP.
The widening of the trade gap, though, has not deepened the state budget deficit, which, while growing, is in line with projections, the Finance Ministry said as officials there released updated data.
The deficit widened to 17.936 billion Sk by the end of July, up almost five billion Sk from a 13.209 billion Sk shortfall recorded at the end of May, the ministry announced on August 4. Economists said the widening trade deficit, though slower than expected, also buried any hope for the NBS easing its monetary policy.
The bank looks at foreign trade development as one of the main factors for assessing future monetary policy. "The NBS is not likely to ease its policy in the near future since its full-year target of five percent of GDP seems unreachable," ING's Barto said.
Since summer 1996, the NBS has been running a policy of austerity in order to curb consumer-oriented credit expansion which was fuelling imports' growth. Facing pressure on the crown in May, it moved further and squeezed crown market liquidity. This pushed interbank rates above 20 percent.
