Slovakia - Economic update

The economy is cooling

Economic growth slowed again in the third quarter of 2019. GDP growth reached 1.3% yoy according to the flash estimate, following the 2.2% yoy growth registered in Q2 (figure SK). Growth was affected by weaker external demand. Monthly statistics showed negative developments related to foreign trade due to a decline in exports. On the other hand, import dynamics remained untouched. Rising imports could signal higher consumer demand and investment growth. From the supply side, cooling GDP growth was affected by the worsening manufacturing, mainly in July and August. The visible impact of slower growth in main trading partners (e.g. Germany) was also evident in the automotive industry and production of metals.

 

Industrial production decreased in September compared to the previous year. This time, though, the fall was less pronounced. Industrial production fell year-on-year by 2.5%, after a slump by more than 8% in August, marked by summer holidays. Production fell particularly in the automotive, rubber, plastics and metal industries. Export results are signalling weaker demand for small and luxury cars produced in Slovakia. Conversely, the production of mid-class cars is growing. Overall, automobile production lost its standing as an export accelerator in the third quarter of 2019. The export of goods grew in September by 0.7% yoy. Imports, though, grew faster, at 5.7%. The accumulated surplus over the first nine months is 715 million euros, while a year ago this figure was some 2.2 billion euros. Another indicator signalling a slowdown at the end of the year is economic sentiment, which in October fell to 95.3 points in October, and is below its long-term average. Industry, retail and consumer confidence also decreased. This concerned in particular the expected falls in vehicle production and in the electrical industry. Conversely, confidence in services and in construction improved. The development of economic sentiment suggests slower economic growth at the end of 2019.

Inflation stagnates at 3%

Inflation in September remained at 3% yoy, the same value as a month earlier. Inflation was higher than predicted by the National Bank of Slovakia. This was due to growth in food prices and regulated prices. Food prices are rising faster than 5% yoy, driven in part by rising meat prices on world markets. Regarding domestic factors, inflation is being pushed by wage costs due to a rise in the minimum wage and in night work increments. Demand-side inflation was higher due to growth in prices of housing, catering and air tickets. Inflation should not continue to grow significantly and could fall slightly next year.

General government deficit and debt grew

The general government deficit increased after a second notification. In 2018, it reached -1.1% of GDP instead of the originally estimated -0.7% of GDP. Debt increased by 0.5 percentage points to 49.4% of GDP. For the purposes of comparison, the fiscal deficit in the EMU was -0.5% of GDP and public debt was 85.9% of GDP. Public debt is thus, again in the sanction zone according to the constitutional law on budgetary responsibility. This means that the Ministry of Finance will have to justify to Parliament the size of the debt and propose measures to further reduce it. Given the ECB’s current loose policy, though, this will clearly not affect the yield curve, or risk premiums. The Fitch rating agency confirmed Slovakia’s A+ rating with a stable outlook. Risk premiums for 10-year government bonds are around 40 points and yields copy the development of German Bunds.

General government deficit and debt grew

The general government deficit increased after a second notification. In 2018, it reached -1.1% of GDP instead of the originally estimated -0.7% of GDP. Debt increased by 0.5 percentage points to 49.4% of GDP. For the purposes of comparison, the fiscal deficit in the EMU was -0.5% of GDP and public debt was 85.9% of GDP. Public debt is thus, again in the sanction zone according to the constitutional law on budgetary responsibility. This means that the Ministry of Finance will have to justify to Parliament the size of the debt and propose measures to further reduce it. Given the ECB’s current loose policy, though, this will clearly not affect the yield curve, or risk premiums. The Fitch rating agency confirmed Slovakia’s A+ rating with a stable outlook. Risk premiums for 10-year government bonds are around 40 points and yields copy the development of German Bunds.

Bulgaria - Economic update

Bulgaria - Economic update

Hungary - Economic update

Hungary - Economic update

Czech Republic - Economic update

Czech Republic - Economic update
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