Report on Economic Development in January 2009 - Summary
In accordance with the flash estimate of the Eurostat, in the last quarter of 2008 the economy of the euro area decreased by 1.5% when compared with the third quarter, and by 1.2%, when compared with the same period of the previous year. The year-on-year inflation rate in the euro area measured by the harmonized index of consumer prices (HICP) decreased in January from 1.6% to 1.1% according to the flash estimate when compared with the previous month, probably mainly from the influence of the development in the world prices of commodities, with further reference to weakened global demand. The development of the exchange rate of the euro against the dollar continued to be volatile. The American dollar strengthened for almost the whole month, which was encouraged by the unfavourable data for the whole euro area, mainly in Germany. The Governing Council of the ECB decided in its February meeting to leave the key interest rates unchanged.
Central banks decreased their key interest rates by 0.5 of a percentage point in the Central European region (Magyar Nemzeti Bank and Czech National Bank), or by 0.75 of a percentage point (Narodowy Bank Polski). Decreasing of the interest rates, particularly the domestic fundamentals indicating a further deceleration of economic activity, contributed to devaluation of all three currencies of the region, particularly the Hungarian Forint. Available data regarding inflation, showed a decrease of consumer prices in the Czech Republic.
The current statistical data for Slovakia confirmed (releasing the flash estimate of the GDP growth) the continuing weakening of the economic activity, when GDP slowed on a year-on-year basis to 2.7% in the 4th quarter of the year. This has so far not been reflected in the development of employment, which recorded a slower growth when compared with the third quarter of the year. On the basis of released information on development of consumer prices, a further deceleration of inflation in the national index can be expected.
We can anticipate that the weakening economic activity of the Slovak economy was a consequence of the decrease in foreign demand. This is evident from the year-on-year decline in the growth rates of exports (by 18.4%) and imports (by 17.3%), which reached a similar level in December when compared with November.
The development in the export activity of the Slovak Republic is closely connected with the industrial production development, the year-on-year decrease of which continued to deepen to 16.8% in December when compared with 7.2% in November. This is the most considerable decrease since 1999 when the current methodology of the industrial production index started to be used. The production of transport vehicles decreased most, and for the first time there was a decline in production in the so-far growing electrotechnical industry. The decline in receipts continued in the selected branches, and also worsened in hotels and restaurants. The receipts in the sale and maintenance of vehicles remained stable in December though in January the number of registrations of new private cars fell. As far as other branches, only the receipts for real estate increased (double-digit growth in stable prices) and in the building industry ( by a much lower rate when compared with the previous month) and retail, post offices and telecommunications slightly improved .
The consequences of weakened global demand were reflected in the further month-on-month decrease in the prices of Slovak industrial products ( second month running) and by the rapid decline in the prices of agricultural products (third month running).
Although the salaries of the selected branches considerably increased in December when compared with November, in the 4th quarter of 2008 they indicate a considerable deceleration in the growth of nominal wages for the whole economy when compared with the previous quarter of the year. The rate of employment increased on a year-on-year basis in December, but was slower than in November. The monthly indicators indicated a deceleration of its growth for the whole 4th quarter of the year when compared with the previous quarter of the year, which has also been confirmed by the released flash estimate. The rate of registered unemployment increased at the same time to 8.4%, that is to say to the highest level from May 2007, while the main large-scale dismissal has not been included so far.
The weakening of economic activity and tightening of credit conditions is probably starting to be reflected in the development of monetary aggregates. This was reflected in a more considerable deceleration of the M3 growth rate in December to the historically lowest level for the whole reported period since 2003.
The volume of PFI claims against the private sector decreased in December 2008 as a consequence of the decline in the volume of loans to financial and non-financial companies. This was most probably connected with demand limitation as well as with the offering of the loans. However, the household sector recorded a higher growth in the housing loans when compared with November, despite a slight tightening of the standards.
The current considerable decrease of the key interest rates of the ECB was reflected not only in the market rates but also in the clients´ interest rates, with the exception of loans in the household sector. The interest rates of the short-term loans decreased in December. In contrast, interest on long-term loans considerably increased, which evidences a higher aversion to lending of long-term funds as well as tightening of interest conditions. The clients´ interest rates on deposits responded much more flexibly to the decline in the market rates, that is to say those of non-financial companies and households.
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National Bank of Slovakia
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