Report on Economic Development in February 2009 - Summary

In the last quarter of 2008 the economy of the euro area fell by 1.5% when compared with the third quarter and for the first time after the establishment of Monetary Union it recorded a decrease of 1.3% also on a year-on-year basis. The year-long economic growth of the euro area thus decelerated from 2.6% in 2007 to 0.8% in 2008. The year-on-year inflation rate in the euro area measured by the harmonised index of consumer prices (HICP) reached 1.2% in February 2009 which is slightly higher than in January 2009 (1.1%). In February, the euro exchange rate against the US dollar depreciated. The ECB Governing Council at its meeting in March decided to further cut the interest rates for the main Eurosystem repo tenders to the level of 1.5% and for the overnight refinancing transactions or, the overnight starilization transactions to the level of 2.5% or, 0.5%. The decrease in key interest rates continued to be complemented also by other tools promoting the liquidity.

The economic growth in the last quarter of 2008 decreased by 3.1% in Poland and by 0.7% in the Czech Republic. The GDP in Hungary decreased by 1.3%. In the Czech Republic, the year-on-year rate of harmonized inflation declined in February, however, it increased in other two countries. In February, all the three currencies of the region continued in their depreciating tendency. Central banks in the Czech Republic and in Poland decreased their interest rates to 1.75% or, to 4%. In Hungary, the basic interest rate remained unchanged, i.e. 9.5%.

The economic growth in the 4th quarter of 2008 slowed also in Slovakia (by 4.1 percentage point to 2.5 %) and therefore decreased the annual GDP growth to 6.4 %. Weakening economic activity of the Slovak economy was a consequence of the decrease in foreign demand and slowdown of domestic demand, mostly its investment constituent. Simultaneously with weaker economic growth, growths o productivity and average wage slowed in the last quarter of 2008. Employment rate continued to rise, although slower than in the previous quarter.

Current quantitative and qualitative monthly data confirm deepening of the economic slowdown. In January 2009 decrease of the exports intensified and trade balance worsened. Decrease of export activity was reflected in the deepening decline of the industry production, mostly in the key car and electrotechnical industry. Order books contracted and sentiment indicator in the industry worsened repeatedly. After up-to-date growth the building production decreased for the first time. Receipts in the selected branches (as of January 2009 according to the new classification SK NACE Rev. 2) marked decline except for selected market services and posts and telecommunications. The overall indicator of economic sentiment in February worsened to its historically lowest level.

In comparison with December 2008 consequences of weaker economic sentiment manifested in January in the slower wages growth (mainly in the building sector, trade and industry), in the major decline of the employment rate (the most in the wholesale, restaurants and hotels) and in growth of registered unemployment rate (by 1 percentage point to 9 %) due to high inflow of job seekers.

The prices of Slovak industry products, both for domestic market and for exports, continued to decrease and decrease of prices of agricultural products further deepened.

The consumer prices measured by the HICP did not change on a month-on-month basis in February and year-on-year inflation rate slowed down from 2.7 % in January to 2.4 %. The largest slowdown was registered in the food prices. Prices of industry products excluding energy and fuels as well as prices of services increased slower. Energy and fuel prices stagnated. The analysis of the change-over effects shows that the euro introduction contributed to the January growth of consumer prices by 0.2 percentage point.

In January 2009 the volume of PFI claims against the private sector, mainly against non-financial and financial companies, continued to decline. However, the household sector recorded slight increase of the loans volume compared to the previous month, despite moderate tightening of standards.

The current considerable decrease of the key interest rates of the ECB was in the last two months of 2008 fully reflected in the market rates. The clients´ interest rates of the loans to non-financial companies recorded major decline. Interest rates of the household loans did not change substantially despite the decrease of the short-term rates. Interest rates of the housing loans hardly changed at all.

Jana Kovacova
Spokesperson of the NBS

National Bank of Slovakia
Communications Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2168,+421-2-5865 2168, +421-2-5787 2169, 421-2-5865 2169
Internet: http://www.nbs.sk

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