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Report on Economic Development in January 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 January according to Eurostat’s flash estimate. 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, according to the preliminary data from Eurostat (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 January. At its February 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 January declined to 1.9% in the Czech Republic and fell to 4.0% in Hungary, according to the respective preliminary data published by the statistical offices of these countries. According to Eurostat’s flash estimate, fourth-quarter GDP in both the Czech Republic and Hungary grew in year-on-year terms, by 2.9% and 2.4% respectively (in comparison, annual GDP growth in the third quarter was 2.8% in the Czech Republic and 2.2% in Hungary). The exchange rate of the Czech koruna, Polish zloty and Hungarian forint strengthened against the European single currency in January. As for changes in central bank base rates in January, the Magyar Nemzeti Bank (Hungary) repeatedly decided to raise its key rate by 0.25 percentage point, to 6.0%, and Narodowy Bank Polski (Poland) also opted to put up its reference rate by 0.25 percentage point, to 3.75%. Key interest rates in the t Czech Republic 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 flash estimate (the same figure for the third quarter 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 0.3%. GDP growth in the last quarter slightly undershot expectations, while the employment figures were in line with expectations.

While industrial producer prices in December continued to decline in year-on-year terms, largely due to falling energy prices, they did so more slowly mainly because of the year-on-year deceleration in energy price inflation and the accelerated inflation in prices of manufacturing products. Raw material prices and water and sewerage rates also recorded a lower increase on a year-on-year basis, while prices of construction work and building materials recorded the same annual rise as they did in the previous month. Year-on-year inflation in prices of agricultural products was substantially lower in December than in November.

The current account deficit for December widened in comparison with previous month, reflecting the adverse effects of a deficit in the trade balance and a slight worsening in the current transfers balance. By contrast, both the balance of services and the income balance showed an improvement on the previous month. The industrial production index again recorded an accelerated increase in December, partly as a result of a base effect. Output in the energy sector and in manufacturing sectors in December increased in comparison with the previous month. In year-on-year terms, construction output remained unchanged in December. Sales in December accelerated slightly on a year-on-year basis, mainly because of an upturn in sales in the sectors of industry, transport and construction. A slowdown in annual sales growth was recorded in the sectors of wholesale trade and the sale of motor vehicles. The overall economic sentiment indicator rose in January, compared with the previous month. The indicator was boosted by a substantial rise in confidence in industry, which was underpinned by an expected increase in industrial output. The confidence indicators in retail trade and services also increased, while confidence in the construction sector and the consumer confidence indicator both recorded a drop.

Average nominal and real wages showed weaker year-on-year growth in December, compared with the previous month. Annual wage growth declined in all sectors apart from transport and storage, and the average nominal wage fell in the sector of information and communication. As for employment, the slowdown in its average year-on-year decline in selected sectors continued in December. The annual employment growth was maintained in industry and in transport and storage, when compared with the same period of 2009. The rate of registered unemployment reached 12.5% in December, representing an increase compared with the previous month.

The sectoral breakdown of deposits in December showed an increase in the amount of both household deposits and deposits of non-financial corporations. Each sector also maintained year-on-year growth in deposits. In the non-financial corporations sector, the most pronounced growth was recorded in the most liquid deposits as well as in deposits with an agreed maturity of up to two years. As for households, they too were gravitating towards demand deposits. Among fixed-term household deposits, the rise in deposits with an agreed maturity of over two years was, as in November, partially offset by the decline in deposits with an agreed maturity of up to two years. The credit expansion to non-financial corporation recorded in previous months came to a halt at the end of the year, although the year-on-year growth in lending did not change and remained positive. That the amount of lending to non-financial companies was lower than in previous months was largely related to a decline in the amount of short-term loans and probably to the fact that firms had sufficient funds from sales. The amount of loans to households continued to rise sharply in December, as did the year-on-year growth in lending. The main driver of this increase was house purchase loans. Whereas retail interest rates on loans to non-financial corporations decreased slightly in December, lending rates for households remained largely unchanged. Retail deposit rates also recorded almost no movement.

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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