NBS Monthly Bulletin, December 2012 - Summary

In the third quarter of 2012, Slovakia’s GDP at constant prices increased quarter-on-quarter by 0.6% (seasonally adjusted) and in year-on-year terms by 2.1% (seasonally unadjusted), according to SO SR data (the corresponding increases for the second quarter were 2.1% and 2.6%). Total employment in the third quarter remained flat on both a quarter-on-quarter and year-on-year basis (whereas in the second quarter it recorded annual growth of 0.2%) In the third quarter both GDP growth and the labour market situation were in line with NBS expectations.

In contrast to the previous quarter, the Slovak economy’s growth in the third quarter was driven by changes in inventories, which offset a negative contribution from net exports. Domestic consumption continued to decline owing mainly to uncertainty about the future economic situation and the labour market and to a decline in real wages. Investment fell for a third successive quarter, albeit by a lower margin than before. As for the marked increase in restocking and accompanying growth in imports, at a time of low external and domestic demand, it may be explained by preparations related to planned investment projects in the automotive industry. GDP growth in the third quarter was in line with the projections given in December’s Medium-Term Forecast (MTF-2012Q4). Looking at its composition, however, the actual increases in investment, general government consumption and exports were all lower than projected. On the other hand, changes in inventories were higher than projected, as was import growth.

Decelerating economic growth was reflected in the labour market, as the annual rate of employment growth slowed and employment expressed in the number of hours worked declined. Annual labour productivity growth continued to exceed annual wage nominal growth, while real wage growth declined due to inflation. The annual rate of decline in unit labour costs in the third quarter became more pronounced, as the growth rate of real labour productivity far outpaced the increase in compensation per employee. With unit labour costs declining further, producers in Slovakia became more competitive. Unemployment continued to rise in the third quarter as the labour market was unable to absorb the increase in the economically active population.

Annual HICP inflation in November was lower than in the previous month, at 3.5%. The headline rate was affected mainly by expected slowdowns in services inflation (rail transport prices), unprocessed food inflation and energy inflation, offset slightly by moderate increases in the components of non-energy industrial goods and processed food. Industrial producer price inflation was lower year-on-year in October than in the previous, month. The main negative contribution came from the energy component, which dampened the increase in producer prices of manufactured goods. The annual rate of change in prices of construction work and building materials accelerated in October. Annual inflation in agricultural prices increased markedly in the month, owing mainly to higher inflation in crop product prices.

The balance of payments current account surplus increased further in October, reflecting mainly an increase in the trade surplus as well as a decline in the balance of income deficit. Other component balances remained largely unchanged.

The annual growth rate of the industrial production index slowed markedly in October, reflecting mainly a sharp year-on-year decline in production in manufacture of transport equipment. However, most industrial sectors registered an increase in annual production. The annual rate of decline in construction production slowed in October. Annual sales growth across the economy was slightly higher in October than in September, on the basis of stronger sales growth in industry, wholesale trade, and transportation and storage. As for the sale of motor vehicles sector, sales slumped in October after rising sharply in the previous month. The Economic Sentiment Indicator fell further in November on deteriorating confidence indicators in industry, retail trade, and construction. The services confidence indicator increased, and for the first time in six months so sentiment among consumers.

Annual growth in the average nominal wage accelerated in October in comparison with the previous month, with almost all sectors contributing to the deceleration; the only exceptions were slower wage growth in accommodation services and a further drop in retail trade sector wages. Employment in October declined year-on-year, with the annual trend showing a deterioration on the previous month. The principal negative contribution came from employment in industry.

Looking at private sector deposits in October, deposits from non-financial corporations increased month-on-month while deposits from households fell. Nevertheless, the annual rate of change in household deposits remained largely unchanged in positive territory. In year-on-year terms, the amount of deposits held by non-financial corporations fell in October, albeit by a lower margin than in the previous month. As regards bank lending to the private sector, household demand for loans continued to hold up in October, but the outstanding amount of loans to other segments declined. Housing loans remain by far the largest component of the household loan portfolio. Despite low consumer confidence and persisting uncertainty, consumer loans also recorded strong growth. The movement of lending rates reflected the downward trend in market rates. Non-financial corporations saw a decline in borrowing costs, which, since the borrowers were larger companies, probably reflected the greater creditworthiness of the customers. As regards lending rates for households, the cost of housing loans fell to a historical low. Deposit rates for non-financial corporations and households remained largely unchanged in October.

The annual rate of euro area inflation in November, as measured by the Harmonised Index of Consumer Prices, fell from the previous month to 2.2%. According to Eurostat data, euro area GDP for the third quarter contracted by 0.6% in year-on-year terms and was 0.1% lower than GDP for the previous quarter (which itself shrank by 0.5 % quarter-on-quarter and by 0.2% year-on-year). The euro was trading lower against the US dollar in November than in October. At its meeting on 6 December 2012, the ECB’s Governing Council decided to leave the key ECB interest rates unchanged, with the main refinancing rate standing at 0.75%, the marginal lending rate at 1.50% and the deposit rate at 0.00%.

In the Czech Republic, Hungary and Poland, annual HICP inflation was lower in November than in the previous month, at 2.8%, 5.3%, and 2.7%, respectively. In both the Czech Republic and Hungary the annual rate of decline in GDP became more pronounced in the third quarter, according to Eurostat data. Czech GDP contracted by 1.3% (after shrinking by 1.0% in the first quarter), and Hungarian GDP contracted by 1.6% (after a decline of 1.4%). In Poland, GDP growth slowed to 1.9% (from 2.3% in the second quarter). The Czech koruna was weaker against euro at the end of November than at the end of the previous month, while the Polish zloty and Hungarian forint appreciated against the single currency.

Each of the central banks of these central European countries reduced their base rates in November: Česká národní banka cut its rate by 20 basis points, to 0.05% (with effect from 2 November 2012), Narodowy Bank Polski by 25 basis points, to 4.5% (with effect from 8 November 2012) and the Magyar Nemzeti Bank by 25 basis points, to 6.00% (with effect from 28 November 2012).

Jana Kováčová
Head of the Press and Editorial Section

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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