Slovakia - Economic update

Slovak economic growth accelerated in the third quarter of 2018. GDP growth reached 1.1% qoq and 4.6% yoy. The economy recorded growth of 4.5% yoy in the second quarter of the year. This acceleration was partly due to a revision of statistical data for the previous period. This increased the growth in Q1-Q3 due to a more favourable comparative base. This marks the fourth consecutive quarter of economic growth acceleration. The biggest contribution came from an increase in inventories. This could be linked to postponed car sales due to the new emission tests as well as to semi-finished investments in the private and public sector (e.g. construction sector). Household consumption increased by 3.2% yoy, an acceleration from 2.0% yoy reported in Q2. This consumption is driven by high employment and real wage growth. Nominal wages increased by 6.1% yoy and real wages by 3.3% yoy. Wages increased in all reported economic sectors. This wage rise is affected mainly by big companies. The positive development on the labour market is also visible in the unemployment rate, that declined to an all-time-low of 6.6% in October.

Export growth decelerated to 5.6% yoy from 7.6% yoy in Q2. This is mainly due to a deceleration in other economic sectors with the exception of the automotive industry. Exports by car factories jumped by 28% yoy due to the start of production in the new Jaguar car plant. We can expect that this trend will continue in the next months. As such, this factor compensated for the overall temporary problems in the automotive industry.
Investment declined by 5.7% yoy after a double-digit growth recorded in the previous quarter. The main reason behind this decline is the higher comparative base.

Government consumption increased by 1.6% yoy which is acceleration from 0.7% yoy in Q2. This acceleration is affected by the expenditure rise in the public sector, mainly in the healthcare system.
Economic growth is also supported by the cheap and accessible loans, with interest rates remaining at all-time lows. Corporate companies have drawn down investment loans as well as working-capital type loans. Mortgage loans showed some deceleration that is probably a result of the macroprudential measures of the regulator. However, households increased the interest for consumption loans. Leading indicators indicate some weakening of the external demand due to slowdown in the Eurozone. However, Slovakia might keep solid dynamics compared to its regional peers thanks to the rise of the new export capacities in the automotive industry.

HICP inflation declined from 2.7% to 2.5% in October (figure SK). This is mainly due to the decline in food prices. Food was cheaper by 0.3% mom . Food inflation reached 2.6% yoy which is the lowest level in the last one and a half year.

Figure SK – Inflation measures (HICP, % change year-on-year)

Source: KBC Economics based on Eurostat (2018)
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