NBS Monthly Bulletin, September 2012 - Summary

The annual rate of euro area inflation as measured by the Harmonised Index of Consumer Prices was 2.6% in August, higher than in the previous month. According to Eurostat’s flash estimate, euro area GDP for the second quarter of 2012 contracted year-on-year by 0.5% and was 0.2% lower than GDP for the previous quarter (which was unchanged in both annual and quarterly terms). The exchange rate of the euro against the US dollar appreciated during August in comparison with the previous month. At its meeting on 6 September 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%.

Annual HICP inflation in August increased in the Czech Republic, to 3.4%, and in Hungary, to 6.0 %, while in Poland it declined to 3.8%. According to Eurostat data, GDP in the Czech Republic contracted by 1.0%, year-on-year, in the second quarter of 2012, after shrinking by 0.5% in the first quarter. In Hungary, the decline in GDP moderated to 1.0% in the second quarter (from 1.2% in the first quarter), and in Poland, too, GDP recorded a lower drop of 2.5% (from 3.5%). The Czech koruna appreciated against the euro in August on a month-on-month basis, while the Hungarian forint and Polish zloty both lost ground against the single currency. Among the central banks of these central European countries, only the Magyar Nemzeti Bank changed its monetary-policy settings in August, decreasing the base rate by 25 basis points, to 6.75%, with effect from 29 August 2012. Narodowy Bank Polski and Česká národní banka left their key rates unchanged, at 4.75% and 0.25 % respectively.

Slovakia’s GDP at constant prices grew by 2.8%, year-on-year, in the second quarter of 2012, according to non-seasonally adjusted data from the SO SR (after rising by 3.0% in the first quarter). Second-quarter GDP increased quarter-on-quarter by 0.7% (seasonally adjusted), which matched the first-quarter growth. Overall employment increased year-on-year by 0.2% in the second quarter, after rising by 0.6% in the first quarter, and it remained unchanged in quarter-on-quarter terms (whereas first-quarter employment increased by 0.1%). The second-quarter GDP growth exceeded the estimate of Národná banka Slovenska, while the labour market situation was in line with expectations.

Although the annual rate of change in Slovakia’s economic growth remained in positive territory in the second quarter, it recorded a further decline from the previous quarter. Looking at GDP measured by output, the main drivers of growth were value added in industry and, to a lesser extent, in agriculture. Economic growth measured by expenditure continued to be boosted by external demand, which recorded a higher annual growth rate in the second quarter, the main cause probably being automotive production. The annual rate of decline in domestic demand increased moderately as consumption demand fell year-on-year, reflecting year-on-year falls in both household and general government consumption. The annual rate of decline in fixed investment contributed to the negative situation in domestic demand, although with firms increasing investments, it was not as pronounced in the second quarter. Exports stimulated by rising external demand outweighed imports dampened by falling domestic demand, and therefore the contribution of net exports remained the main driver of economic growth in the second quarter. The increase in investment activity of enterprises, supported by moderate profit growth, was checked by a year-on-year decline in the second-quarter profits of financial corporations. The balance of payments current account improved year-on-year in the first half of 2012, recording a surplus for the period. The gains were largely attributable to a strong rise in the trade surplus, and there were positive contributions from all other components with the exception of the current transfers balance. The slowdown in economic growth was also related to the labour market situation, which included lower growth in employment and weaker wage growth. Employment as measured by the number of hours worked also declined. Annual labour productivity growth continued to exceed annual wage growth, which declined in real terms due to inflation. Unit labour costs fell year-on-year in the second quarter as real labour productivity growth exceeded employee compensation growth, and hence they contributed to higher competitiveness. The labour market still has a large capacity to absorb a substantial inflow of economically-active people.

Slovakia’s annual HICP inflation in August remained unchanged from the previous month, at 3.8%. Looking at the inflation dynamics there were higher annual rates of change in prices of unprocessed food, non-energy industrial goods and services, and these were offset by lower food and energy inflation. The annual growth rate of producer prices was lower in July than in the previous month, owing mainly to a marked slowdown in the manufacturing component, as well as in other components with the exception of energy. The annual rate of change of construction work prices was higher in July than in June, while that of building material prices declined. As for agricultural prices, they recorded a moderate annual increase in July after falling in June.

The balance of payments current account surplus was higher in July than in the previous month, due largely to an increase in the trade surplus and partly also to a decline in the income balance deficit. The annual growth rate of the industrial production index recorded a further marked rise in July, based on strong growth in the manufacturing component which reflected a ramp-up of production in the automotive industry. The annual rate of decline in construction production eased in July. Annual sales growth across the economy was far higher in July than in June, boosted mainly by sales growth in industry and in transportation and storage. Annual sales figures were buoyant in all sectors apart from construction, where they have long been on a downward trend. The Economic Sentiment Indicator increased month-on-month in September based on improvements in the industrial and retail trade confidence indicators. At the same time, however, sentiment deteriorated in construction, services and among consumers.

Turning to nominal wage growth, its annual rate of change was moderately higher in July than in June, reflecting mainly an acceleration of wage growth in industry as well as positive rates of change in construction and selected market services. Annual employment growth in July was moderately lower than in the previous month and therefore it was almost flat. The rate of registered unemployment in July remained unchanged from the previous month, at 13.3%.

Private sector deposits increased in July, swelled not only by deposits from households and deposits from non-financial corporations (following a month-on-month slump in June), but also by deposits from other institutions (pension and insurance funds, and other financial intermediaries). The growth in deposits across the sector was attributable to a decline in interest rates, particularly on short-term time deposits and demand deposits, the stocks of which increased at the expense of longer-term deposits. The annual rate of decline of deposits from non-financial corporations was lower in July than in the previous month, while the annual growth rate of household deposits remained almost unchanged. Turning to lending activity, loans to households increased in July, and so did loans to non-financial corporations after declining sharply month-on-month in June. Among household borrowers, the heaviest demand was for loans with a maturity of up to one year, while the outstanding stock of loans with a maturity of up to five years declined. Household loan demand is therefore holding up, despite uncertainty about future economic developments. Non-financial corporations have traditionally shown preference for real estate loans. In both the household and non-financial corporations sectors, the annual rate of change in lending was almost the same as in the previous month. Lending to the other institutions sector also increased in July, thus ending a long declining trend. Market interest rates in July were affected by the ECB’s decision to lower key rates, and as a result the main change in retail rates was a decline in lending rates for non-financial corporations. By contrast, lending rates for households increased slightly, with the cost of housing loans rising for the first time since the beginning of the year. Deposit rates in July remained flat for both non-financial corporations and households.

Petra Pauerová
hovorkyňa NBS

National Bank of Slovakia
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