Report on Economic Development in April 2011 - Summary

The year-on-year rate of euro area inflation, as measured by the Harmonised Index of Consumer Prices, increased in April to 2.8%. Euro area GDP for the first quarter of 2011 grew by 2.5% in year-on-year terms and by 0.8% when measured against the previous quarter, according to Eurostat’s flash estimate (by comparison, GDP for the fourth quarter of 2010 rose by 2.0% year-on-year and by 0.3% quarter-on-quarter). Looking at GDP growth in individual euro area countries in the first quarter of 2011, Estonia recorded the strongest quarter-on-quarter increase of 2.1%, and Portugal the largest decline of 0.7%. The exchange rate of the euro against the US dollar appreciated during April. At its May meeting, the ECB’s Governing Council decided to leave the key ECB interest rates unchanged, with the rate for the main refinancing operations standing at 1.25%, the marginal lending rate at 2.00% and the deposit rate at 0.50%.

The annual rate of HICP inflation in March slowed slightly in the Czech Republic, to 1.6%, and accelerated moderately in Hungary and Poland, to 4.4% and 4.1%, respectively. In the Czech Republic, GDP grew by 2.5% in the first quarter of 2011 (compared to a rise of 2.6% in the fourth quarter), and in Hungary it went up by 2.2% (compared to 2.6%), according to Eurostat’s flash estimate. The exchange rate of the Czech koruna, Polish zloty and Hungarian forint strengthened against the euro in April. Key interest rates in the Czech Republic and Hungary remained unchanged in April. Among the countries under review, the only change in monetary-policy conditions occurred in Poland. On 6 April 2011, Narodowy Bank Polski raised the base rate by 0.25 percentage point, to 4.00%.

In Slovakia, the annual rate of HICP inflation in April rose month-on-month, to 3.9%. The rate was influenced by an accelerated annual increase in prices of non-energy industrial goods and in prices of services and by a slower annual increase in prices of energy and food. In March, industrial producer prices in Slovakia continued to rise in year-on-year terms, but at a moderately slower pace. The higher annual rate of increase in food production prices, within manufacturing product prices, was offset by a lower rate of growth in energy prices for producers. Prices of agricultural products also recorded accelerated annual growth, largely due to a substantial annual rise in prices of plant products. The annual rate of increase in animal product prices was also higher than in the previous month.

Slovakia’s seasonally unadjusted GDP for the first quarter of 2011, measured at constant prices, increased by 3.5% year-on-year, according to the SO SR’s flash estimate (in the fourth quarter of 2010, it rose by 3.5%). The quarter-on-quarter increase in seasonally adjusted GDP was 1.0%. Overall employment in the first quarter was 2% higher than in the same period of 2010 and 0.6% higher than in the fourth quarter of 2010 (by comparison, employment in the fourth quarter rose by 0.5% year-on-year). The first-quarter GDP growth and revival in the labour market were stronger than NBS had expected.

The current account balance for March showed a deterioration on the previous month. Its deficit was caused mainly by the current transfers balance, which entered negative territory amid a decline in the utilisation of EU funds. The current account deficit was tempered by a positive trade balance figures. The annual rate of change in the industrial production index continued slowing in March, possibly reflecting the effects of fiscal consolidation in certain countries and the escalation of oil prices. The most marked decline in output occurred in the sector of electricity and gas supply. Manufacturing industry, the largest component of the IPI, recorded only a moderate slowdown in year-on-year growth, while construction production remained flat. Turning to sales, the annual rate of growth in total sales in the selected sectors fell slightly in March, as it did the previous month. The weakening of sales in industry and retail trade was mitigated by stronger sales performances elsewhere, particularly in the construction sector and the transport and storage sector. The overall economic sentiment indicator rose in April, compared with the previous month. The indicator was boosted by rising confidence in industry, construction and retail trade, as well as stronger consumer confidence. On the other hand, confidence in services deteriorated in comparison with the previous month.

Nominal wages and real wages recorded a higher year-on-year increase in March than in the previous month. Annual wage growth in the sector of industry increased in comparison with February, but wages in most of the sectors under review recorded either slower growth or a further decline. As for employment, its year-on-year growth continued in March, with rising employment reported in the following sectors: industry, information and communication, selected market services, and transport and storage. For the first time in two years, the retail trade sector and restaurant and pub trade sector also recorded a rise in employment. Only in the construction sector did employment fall more sharply than in the previous month. The rate of registered unemployment fell slightly in March in comparison with the previous months, to stand at 13.1%.

As regards deposits, the household and non-financial corporation sectors reported the same trends in March. The amount of deposits of both non-financial corporations and households fell month-on-month, mainly due to a shifting of funds from the most liquid deposits to term deposits with an agreed maturity of up to two years. Another factor behind the drop in deposits of non-financial corporations was the tax deadline. In addition, a proportion of households’ deposits were probably used for consumption. Long-term household deposits fell in volume, thus ending their recent sustained rising trend. The deposits of both sectors maintained an annual rate of growth, although the increase in deposits of non-financial corporations declined in comparison with the previous month. As for lending, the amount of loans to non-financial corporations fell slightly in March. Even so, lending to non-financial corporations continued to record an annual rate of growth, albeit due to the heavy borrowing that took place in previous months. The amount of recently provided investment loans is expected to give a particular impetus to the economy. Lending to households in March recorded its strongest month-on-month growth of the year. The expectations for a rise in key ECB interest rates were reflected in an increase in market interest rates. Retail lending rates to non-financial corporations increased, as did interest rates on consumer loans to households. Deposit rates, however, remained largely unchanged.

Petra Pauerová
Spokesperson of the NBS

National Bank of Slovakia
Press and Editorial Section
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2142, +421-2-5865 2142, +421-2-5787 2169, +421-2-5865 2169
Internet: http://www.nbs.sk

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