Slovakia - Economic update January 2019

Industrial production increased by 3.3% yoy in November 2018, pulled up mainly by the automotive industry. Hence Slovakia did not follow the downward trend in the German industry. The statistical office also significantly revised industrial production data for 2018. The revision specifically related to car production, which was revised up by 14 percentage points for the whole year. This means industrial production through the January–October period increased by more than 3 percentage points than previously reported. The general strength in output has been driven mainly by strength in car production, where double digit growth figures were booked almost every month of 2018. However, the peak in industrial production growth (8.1% growth yoy) was reached in August 2018. Production continued to decelerate in October (6.2% yoy) and November (3.3% yoy). The deceleration trend is also visible in the automotive segment. Car production increased by 34.5% yoy in September, 29.8% yoy in October, and 20.5% yoy in November. The data for industrial production and sales should be more consistent after the revision and better reflect the shift towards the production of more expensive and luxurious cars in Slovakia.

The foreign trade surplus narrowed to EUR 68 million in November 2018, which is only a fourth of the surplus reported in October and significantly less than the EUR 491 million surplus reported a year earlier. Imports continue to accelerate, growing 10.8% yoy in November. Export growth, on the other hand, decelerated from 6.7% yoy in October to 4.3% yoy. Almost 25% of total exports in 2018 came from the automotive segment (compared to approximately 14% before the crisis). Softer export growth is mainly linked with weakness specifically in the subsegment of car-parts production. Exports of the main three car producers, in contrast, continue to rise. Meanwhile, import growth is accelerating mainly due to demand from more import-intensive production in the car industry compared to the past.

The index of economic sentiment increased by 1.7 points to 98.5 in December due to positive expectations in retail trade, services and manufacturing. However, the overall trend is declining, and economic sentiment was weaker in Q4 compared to Q3 2018. The PMI shows similar trends relative to sentiment indicators in western Europe, the main export territory of Slovakia.
HICP inflation decelerated in November. Headline inflation moved from 2.5% yoy to 2.0%. The main reason was a decline in food and fuel prices as a result of trends elsewhere in Europe (mainly affected by oil development). However, inflation might accelerate again due to a gas price hike for households in December and an expected price hike in electricity and heating in January.

Figure SK1 - HICP inflation (yearly change in %)

Source: KBC Economics based on Eurostat

The unemployment rate continued to decline, reaching 6% in November 2018 according to Eurostat, which is below the EU average (6.7%). However, space for further decline is rather limited meaning any further decline in unemployment will be at a much slower pace.

Figure SK2 - Unemployment rate (in % of the labour force, end of year, Eurostat definition)

Source: KBC Economics based on Eurostat