Report on Economic Development in August 2010 - Summary

The year-on-year inflation rate of the euro area measured by the harmonised index of consumer prices was 1.6% in August (1.7% in July). The gross domestic product of the euro area in the second quarter of 2010 based on Eurostat data, has increased year-on-year by 1.9% (0.8% in the first quarter) and quarter-on-quarter by 1.0% (0.3% in the first quarter). The euro exchange rate against the American dollar depreciated in the course of August. During its September meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at the level of 1.00%, 1.75% and 0.25% respectively.

In August, the year-on-year inflation measured by the harmonised index of consumer prices in Poland and Hungary remained unchanged at the level of 1.9% and 3.6% respectively. The growth of prices in the Czech Republic slightly decelerated to 1.5%. Gradual recovery of surrounding economies continued also in the second quarter of 2010. According to the Eurostat´s flash estimate, the gross domestic product of the Czech Republic increased year-on-year by 2.4% (1.0% in the first quarter), in Poland by 3.8% (3.1% in the first quarter) and in Hungary by 0.1% (it declined by 1.2% in the first quarter). Evaluation trend of central-european exchange rates of currencies against the euro proved to be temporary in July, and in August, the Czech koruna, the Polish zloty and the Hungarian forint depreciated again against the euro. The key interest rates in the Czech Republic, Poland and Hungary remained unchanged.

The year-on-year inflation measured by the harmonised index of consumer prices (HICP) in Slovakia slightly increased in August to 1.1% (1.0% in July). The year-on-year growth of HICP was fuelled mainly by the growth in food prices. The year-on-year dynamics of prices for services also increased. The decline in prices for industrial goods excluding energy slowed down. Regarding prices of industrial producers, the year-on-year decline was sharper owing to the slowdown in the year-on-year growth rate in fuel prices. In terms of prices of industrial producers, a slowdown in their year-on-year decline continued also in July. This development was shaped by all components, primarily the slower decline in energy prices. Both prices of industrial products, as well as prices of raw materials were growing and the dynamics of water and sewerage rates decreased. In July, prices for construction works recorded again a modest decline on a year-on-year basis. The year-on-year dynamics of prices of agricultural products increased significantly in July, when compared with a previous month.

The Slovak gross domestic product (according to the Statistical Office of the Slovak Republic) increased in constant prices year-on-year by 4.7% (by 4.8% in the first quarter). The economy continued in its quarter-on-quarter growth on the level of 1.2% (seasonally adjusted), in comparison with the growth of 0.8% in the first quarter. Total employment fell year-on-year by 2.3% and when compared to the previous quarter, its decline moderated by 0.7 of a percentage point. In comparison to expectations, the GDP growth was faster and a decline in employment milder.

From the production point of view, the GDP in the second quarter was related to the increasing of added value especially in industry, agriculture and public services. The structure of economic growth on the side of use was henceforward influenced particularly by the growing foreign demand. The growth of domestic demand was primarily connected with growing stocks, while the final household consumption, as well as the consumption of general government decreased. The decline in investments kept persisting and when compared to the previous quarter, it was sharper. The growing foreign demand was seen in accelerated export dynamics and the year-on-year improvement of foreign trade balance. The net export made a positive contribution to the GDP growth. The labour productivity continued to grow as a result of persisting economic recovery and the fall in employment. In the second quarter of 2010, the growth of real labour productivity again outstripped the growth of real wages. However, the outstripping was not as significant as in the previous quarter. The unit labour costs continued to fall on a year-on-year basis in the second quarter of 2010, as a result of the higher year-on-year dynamics of growth in labour productivity, when compared to the lower dynamics of growth in compensations per employee. A mitigation of the year-on-year decline in employment and a decrease in the rate of unemployment was recorded as a result of the growing economic activity. The overall recovery of the Slovak economy was also related to the year-on-year increase in the profitability of financial and non-financial corporations in the second quarter of 2010, mostly due to the increase of the positive economic result of non-financial corporations. Industry contributed most significantly to the profit growth of non-financial corporations.

The achieved current account balance when compared to the previous month worsened in July. The month-on-month increase in the current account deficit was recorded mostly due to the negative development of the trade balance and partially as a result of deepening of the deficit in the balance of services and the balance of current transfers.

The growth dynamics of the industrial production index decelerated in July, mostly due to the significant decrease of the year-on-year dynamics in the Energy Sector. Only slight deceleration of the year-on-year growth was recorded within the industrial production. The year-on-year decline in the construction industry mitigated again in July, when compared to the previous month. The year-on-year dynamics of the revenues growth in selected sectors slowed down in July, mostly as a result of the lower dynamics of revenues in industry as well as in the transport and trade sectors. A positive development of the year-on-year dynamics of revenues was recorded in selected market services as well as information and communications industry. In August, the overall indicator of economic sentiment decreased, when compared to the previous month. A decline of the Indicator of Confidence in industry and services as well as Indicator of Consumer Confidence had a negative influence on the development of the Indicator. When compared to the previous month, the confidence in retail and construction industry recorded an increase.

The year-on-year dynamics of the average nominal as well as real wage slowed down in July, when compared to the previous month. On average, the negative year-on-year dynamics of employment in individual sectors mitigated in July. When compared to the same period last year, the decline of almost all the monitored sectors except for the construction industry decelerated. In July, the rate of registered unemployment remained unchanged at the level of 12,3%, when compared to the previous month.

The development of deposits by sectors was different in July. The volume of deposits of non-financial corporations decreased when compared to the previous month, mostly due to the decreased volume of overnight deposits. Household deposits grew as a result of increased overnight deposits. However, a positive year-on-year dynamics was observed both with household deposits as well as with deposits of non-financial corporations. The volume of loans to the private sector increased on a month-on-month basis when compared to the previous month. Banks increased the volume of loans for non-financial corporations and other financial intermediaries confirming a positive trend of providing loans for this sector. The year-on-year decline in loans to non-financial corporations slowed down. Relatively dynamic growth of household loans continued also in July. However, the year-on-year dynamics decreased slightly after three months of moderate acceleration. Loans for real estate purchases dominated the household loans. As for the development of client interest rates on loans, the trend of moderate decrease of interest rates from household loans was halted in July. Interest rates on loans to non-financial corporations increased again after the last month’s decline to its May level. Interest rates on deposits of non-financial corporations and households recorded the same development. A moderate growth of interest rates on deposits was recorded by deposits with agreed maturity up to 1 year. Interest rates of the shortest and the most liquid deposits remained unchanged.

Petra Pauerová
Spokesperson of the NBS

National Bank of Slovakia
Press and Editorial Section
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