NBS Monthly Bulletin, August 2011 - Summary

The annual rate of inflation in the euro area, as measured by the Harmonised Index of Consumer Prices, remained at 2.5 % in August. According to Eurostat data, the euro area’s gross domestic product for the second quarter of 201l grew by 1.6% in year-on-year terms and by 0.2% when measured against the previous quarter (by comparison, GDP for the first quarter rose by 2.4% on a year-on-year basis and by 0.8% quarter-on-quarter). The exchange rate of the euro against the US dollar appreciated during August in comparison with the previous month. At its September meeting, the ECB’s Governing Council decided to leave the key ECB interest rates unchanged, with the main refinancing rate standing at 1.50%, the marginal lending rate at 2.25% and the deposit rate at 0.75%.

All countries of the central European region reported a higher annual rate of HICP inflation in August than in July; in the Czech Republic it stood at 2.1%, in Poland 4.0%, and in Hungary 3.5%. In the Czech Republic, GDP for the second quarter grew by 2.2 % year-on-year (compared with a rise of 2.8% in the first quarter), according to Eurostat. In Hungary, second-quarter GDP rose by 1.2% year-on-year (down from 1.7% in the first quarter), and in Poland it rose by 4.5% (up from to 4.4%). The exchange rates of the Polish zloty and Hungarian forint depreciated against the euro over the course of August, while the Czech koruna appreciated. Key interest rates in Poland, the Czech Republic and Hungary were left unchanged in August, with Narodowy Bank Polski keeping the base rate at 4.50%, Česká národní banka at 0.75%, and the Magyar Nemzeti Bank at 6.00%.

Slovakia’s seasonally unadjusted GDP for the second quarter of 2011, measured at constant prices, grew by 3.3% year-on-year, according to SO SR data (after a rise of 3.5% in the first quarter). The quarter-on-quarter growth in seasonally adjusted GDP was 0.9%, the same as in the first quarter. As for overall employment, its annual rate of change in the second quarter declined slightly, to 2.1%, from 2.2% in the first quarter. In quarter-on-quarter terms, employment growth slowed to 0.3%. The GDP growth and labour market recovery recorded in the second quarter of 2011 surpassed NBS expectations.

In terms of annual output performance, second-quarter GDP was positively affected by value added, which increased in industry by more than it fell in the construction and agriculture sectors. On the expenditure side, economic growth continued to be driven mainly by rising external demand. Declining domestic demand was affected by negative developments in general government consumption and stagnation in private consumption. The drop in consumption demand was to some extent offset by the continuing rise in gross fixed capital formation, with investment growing more sharply than in the previous quarter. Net exports continued to make the largest positive contribution to GDP growth. The economic upturn was reflected in the labour market, as employment maintained annual growth in the second quarter. Economic growth had a positive effect on labour productivity and it remained positive, acelerating moderately on the previous month due to slower growth in employment. Unit labour costs climbed in the second quarter, since the annual rate of growth in compensation per employee was sharper than that in labour productivity. Amid the continued upturn in economic activity, the unemployment rate declined in comparison with the same period of the previous year. The positive economic situation continued to be reflected in the financial situation of firms, as corporate profits again recorded a year-on-year increase in the second quarter. The most substantial annual rise in profits was observed in the financial sector, while profit growth of non-financial corporations slowed. The real estate and business services sector made the largest contribution to the profits of non-financial corporations, while the industry sector reported the largest slowdown in annual profit growth.

In Slovakia, the annual rate of HICP inflation in August rose month-on-month, to 4.1%. HICP inflation was pushed up by energy prices and prices of non-energy industrial goods, which recorded a higher annual increase in August than in the previous month. On the other hand, the annual rate of change in food prices and services prices declined. As regards industrial producer prices (IPP), their annual rate of growth slowed again in July, mainly due to the increasing year-on-year decline in energy prices, which reflected lower prices for the manufacture of gas and distribution of gaseous fuels through mains. Prices of construction work and building materials recorded a sharper annual rise, as did prices of agricultural products.

The current account deficit in July was higher than in the previous month, largely owing to a lower trade surplus. The current account balance was also negatively affected by mounting deficits in the current transfers balance and services balance.

As for the industrial production index, its annual rate of growth remained unchanged in July, from the previous month. Although there were lower year-on-year rises in production in the manufacturing sector and mining and quarrying sector, these were offset by a higher increase in the electricity, gas, steam and air-conditioning supply sector. The slower annual rate of growth in manufacturing production was related to the substantially lower year-on-year rise in production in the manufacture of transport equipment sector. In the construction sector, the annual rate of decline in production increased in July. Turning to aggregate sales for selected sectors, their annual rate of growth was more moderate in July. Sales growth in industry slumped year-on-year, owing mainly to lower sales in the manufacture of transport equipment sector. The overall economic sentiment indicator rose in August in comparison with the previous month. The indicator was boosted by rising confidence in industry. The indicators of confidence in construction, retail trade and services, and the consumer confidence indicator, all deteriorated from the previous month.

Nominal wages and real wages recorded a higher year-on-year increase in July than in June. The annual growth in nominal wages was driven mainly by wages in the information and communication sector and in the industry sector. Annual employment growth in July was slower than in June, with most of the sectors under review recording lower year-on-year employment growth. The rate of registered unemployment rose in July in comparison with the previous month, to stand at 13.2%.

The level of private sector deposits in July reflected a sharp fall in deposits of non-financial corporations and an increase in household deposits. As regards deposits of non-financial corporations, their slump was caused mainly by seasonal factors, in particular a decrease in the most liquid deposits owing to the payment of dividends. It was to some extent offset by a rise in term deposits. By contrast, the increase in household deposits consisted mainly of a rise in deposits with an agreed maturity of up to 2 years. The deposits of both sectors maintained an annual rate of growth in July. Although the credit expansion slowed in July, lending to both sectors continued to rise. In the case of loans to non-financial corporations, the increase in loans with a maturity of more than five years was offset by the decline in loans with a maturity of between 1 and 5 years. Lending growth to households consisted mainly of an increase in housing loans. In both sectors, the annual rate of change in lending was positive and largely unchanged in comparison with the previous month. The cost of borrowing for non-financial corporations maintained its upward trend in July with a moderate increase, mostly in short-term lending rates. Lending rates for households also rose. Deposit rates for both non-financial corporations and households declined slightly in July, with the most pronounced drop recorded by deposits with the shortest maturity.

Petra Pauerová
Spokesperson of the NBS

National Bank of Slovakia
Press and Editorial Section
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