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Report on Economic Development in July 2010 - Summary

The year-on-year inflation rate of the euro area measured by the harmonised index of consumer prices was 1.7% in July (1.4% in June). The gross domestic product of the euro area in the second quarter 2010, based on preliminary Eurostat data, has increased year-on-year by 1.7% (0.6% in the first quarter) and quarter-on-quarter by 1.0% (0.2% in the first quarter). The euro exchange rate against the American dollar appreciated in the course of July. During its August 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 July, the year-on-year inflation measured by the harmonised index of consumer prices in Poland and Hungary decelerated to 1.9% and 3.6% respectively. On the contrary, the growth of prices in the Czech Republic accelerated to 1.6% in July. According to the Eurostat’s flash estimate, the gross domestic product of the Czech Republic increased year-on-year by 2.2% in the second quarter 2010 (0.9% in the first quarter) and that of Hungary went up by 0.1% in the second quarter 2010 (-1.2% in the first quarter). The depreciation trend of the exchange rates of currencies in the region against the euro halted in July, and the Czech koruna, the Polish zloty and the Hungarian forint appreciated. 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 July to 1.0% when compared to the previous month (0.7% in June). The year-on-year growth of HICP was fuelled mainly by the growth in food prices. The increased year-on-year pace of growth in food prices was due to the growth in both processed and unprocessed food prices. On the contrary, the year-on-year dynamics of prices for energy and services decelerated in July, while the lower growth of energy prices was influenced by a slower growth in fuel prices. The year-on-year growth rate of prices for industrial goods excluding energy stagnated. Regarding prices of industrial producers, a slowdown in their year-on-year decline continued also in June. This development was shaped by all components, as there was a growth in prices for industrial products, raw materials and in water and sewerage rates, and a decrease in energy prices slowed. A modest decline in a year-on-year growth was recorded in prices for construction works. The year-on-year dynamics of prices of agricultural products increased slightly in June when compared to the previous month.

According to the flash estimate of the Slovak Statistical Office, the Slovak gross domestic product in constant prices increased year-on-year by 4.6% (seasonally non-adjusted) in the second quarter of 2010, while seasonally adjusted GDP increased quarter-on-quarter by 1.2%. Total employment fell by 2.3% compared to the same period last year and by 0.2% compared to the previous quarter this year. Contrary to expectations, the GDP growth was faster and a decline in employment slightly slower.

The balance of the current account improved in June compared to the previous month. The current account deficit was reduced mainly due to the higher surplus of the trade balance and partially also to a decline in deficits of income balance and balance of services. Developments in the current transfers balance had a negative impact on the overall balance of the current account.

A significant growth in the industrial production index slowed in June as a result of the decreased year-on-year dynamics of industrial production and partially due to the base effect. The industrial sector has further been positively influenced by favourable external environment. A year-on-year decline in the level of construction in June slowed in comparison to the previous month. The year-on-year dynamics of total revenues growth in selected sectors decelerated in June, mainly as a result of a lower dynamics in industrial revenues. Adverse developments were also reported in the wholesale and information and communication sectors. The retail and selected market services sectors positively contributed to the year-on-year dynamics of total revenues. The overall indicator of the economic sentiment increased in July compared to the previous month. The positive trend in the indicator was affected by favourable developments in the confidence indicator in the retail, industry and services sectors. However, the consumer confidence indicator and the confidence indicator in the construction sector deteriorated.

The year-on-year growth rate of the average nominal and real wages increased in June when compared to the previous month. The negative year-on-year dynamics of the average employment rate for selected sectors ameliorated again in June. In the majority of reported sectors there was a slow-down of their decline in comparison to the same period last year. The registered unemployment rate slightly increased to 12.3 % in June when compared to the previous month.

The volume of deposits of non-financial corporations by sectors decreased in June compared to the previous month, mainly due to the lower volume of term deposits (up to 2 years) and demand deposits. The volume of household deposits increased. Nevertheless, positive year-on-year dynamics was preserved, both for household deposits and deposits of non-financial corporations. Loans to the private sector showed a contrary development in their volume on a month-on-month basis in June. The volume of loans to non-financial corporations decreased, while the household loans increased month-on-month mainly as a result of increased housing loans. Loans to households have been dynamically growing since the beginning of 2010 and in June reported the highest month-on-month increase since the end of 2008. Both sectors showed a positive trend on a year-on-year basis. As for the development in customer interest rates on loans, the trend of declining interest rates on loans to households continued in June. The increase of interest rates on loans to non-financial corporations stopped and their interest declined. Interest rates on household deposits slightly fell in June, while the interest on deposits of non-financial corporations remained unchanged.

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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