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Report on Economic Development in February 2011 - Summary

The year-on-year rate of euro area inflation, as measured by the Harmonised Index of Consumer Prices, increased to 2.4% in February according to Eurostat’s data. Gross domestic product for the last quarter of 2010 grew by 2.0% in year-on-year terms and by 0.3% when measured against the previous quarter (by comparison, GDP for the third quarter rose by 1.9% on a year-on-year basis and by 0.3% quarter-on-quarter). The exchange rate of the euro against the US dollar appreciated during February. At its March 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 1.00%, the marginal lending rate at 1.75% and the deposit rate at 0.25%.

The annual rate of HICP inflation in February remained unchanged in the Czech Republic, at 1.9%, accelerated in Hungary, to 4.2%, and fell in Poland, to 3.3%. According to the Eurostat data, fourth-quarter GDP in the Czech Republic, Hungary and Poland grew in year-on-year terms by, respectively, 2.6%, 2.3%, and 3.9% (in comparison, annual GDP growth in the third quarter was 2.7% in the Czech Republic, 2.2% in Hungary, and 4.6% in Poland). The Czech koruna and Polish zloty depreciated against the euro over the course of February, while the Hungarian forint appreciated. Key interest rates in Poland, the Czech Republic and Hungary remained unchanged in January.

Slovakia’s seasonally unadjusted GDP for the last quarter of 2010, measured at constant prices, increased by 3.5% on a year-on-year basis, according to the SO SR’s revised data (in the third quarter it rose by 3.8%). The quarter-on-quarter increase in seasonally adjusted GDP was 0.9%. Overall employment in the fourth quarter was 0.5% higher than in the same period of 2009 (the third quarter reported a decline of 0.7%), and compared with the previous quarter it rose by 0.4 %. GDP growth in the last quarter slightly undershot expectations, while the employment figures were in line with expectations.

In terms of the output breakdown, GDP development in the last quarter of 2010 reflected the increase in value added, mainly in industry, construction, and public services.

The structure of economic growth as measured by expenditure continued to be influenced mainly by rising external demand. The moderate increase in domestic demand was largely related to an increase in fixed investments. In the last quarter of 2010, household final consumption came to the end of its sharp decline and recorded modest year-on-year growth. By contrast, government final consumption fell. Net exports made a positive contribution to GDP growth. The deficit on the balance of payments current account deteriorated slightly in 2010, although the deficit as a share of GDP fell in comparison with the same period of the previous year. The current account structure also underwent a change, as the year-on-year decline in the trade surplus was offset by improvements in the services balance and current transfers balance. The year-on-year fall in the trade surplus stemmed from the adverse effect of rising import intensity and the increasing prices of raw materials on world markets. With overall economic development maintaining an upward trend, the labour market situation improved in the fourth quarter of 2010 and employment increased in year-on-year terms. But although labour productivity growth remained positive amid the continuing economic upturn, its annual growth slowed from that recorded in the previous quarter owing to the rise in employment. Real wage growth did not match the increase in labour productivity. The annual decline in unit labour costs continued in the fourth quarter of 2010, as labour productivity recorded higher year-on-year growth in comparison with the moderate rise in compensation per employee. Economic activity growth is expected to put downward pressure on the unemployment rate. The economic upturn was also reflected in the corporate sector, where the financial situation of firms remained favourable and the year-on-year increase in profits continued to be positive. The main driver of profit growth among non-financial corporations was industry.

In Slovakia, the annual rate of HICP inflation in February increased in month-on-month terms, to 3.5%. The HICP rate was influenced mainly by an acceleration of annual inflation in energy and food prices. As for prices of services and prices of non-energy industrial goods, their rate of increase remained unchanged. Industrial producer prices accelerated in January in year-on-year terms, after previously recording a downward trend. The turnaround was partly related to the base effect of the substantial reduction in energy prices at the beginning of 2010. Other producer prices also recorded a rise in their year-on-year growth.

The current account balance achieved in January showed an improvement on the previous month. The reduction in the current account deficit was largely attributable to the trade balance surplus as well as to improvements in the current transfers balance and services balance. The income balance worsened slightly in comparison with the previous month. As for the industrial production index, its year-on-year growth slowed somewhat in January, although most sectors continued to report a positive growth trend. Annual output growth in the manufacturing sector, the largest component of the index, increased in January in comparison with December. Construction production for January declined in year-on-year terms. Sales in January increased year-on-year, mainly due to an upturn in sales in the sectors of industry, information and communication, and construction. Annual sales growth was dampened by a slowdown in sales growth in the transport and storage sector. The overall economic sentiment indicator recorded a lower figure in February than in the previous month. The indicator was adversely affected by a downturn in confidence in industry, which reflected expectations for a fall in industrial production. Confidence indicators in retail trade, construction and services also declined, while January’s consumer confidence indicator reported a rise.

Year-on-year growth in nominal wages in the selected sectors was, on average, higher in January than in the previous month. The sectors in which nominal wage growth increased were the sale and maintenance of motor vehicles, retail trade, and industry. As for employment in January, it increased in the year-on-year comparison, thus ending a two-year downward trend. Annual employment growth was maintained in industry, and rose sharply in the information and communication sector. The rate of registered unemployment reached 13.0 % in January, representing an increase compared with the previous month.

In the area of deposits, the household and non-financial corporation sectors reported different developments in January. Whereas household deposits increased in comparison with December, deposits of non-financial corporations declined. This drop, following a sharp upward trend in previous months, was largely attributable to a fall in demand deposits. In year-on-year terms, however, deposits from both sectors continued to grow, and in the case of non-financial corporations, substantially so. The deposits accumulated by households were mainly those with an agreed maturity of up to two years. Lending to both sectors showed positive developments. The substantial month-on-month increase in lending to non-financial corporations was related to the improving economic situation of firms. In year-on-year terms, however, lending growth remained at the same positive level. The low increase in lending to households was probably a result of seasonal factors. Annual lending growth in both sectors remained positive. Retail lending rates to non-financial corporations continued their moderate decline in January, and interest rates on loans to households also came down. Deposit rates for both sectors increased slightly.

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

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