Report on Economic Development in June 2011 - Summary
The year-on-year rate of euro area inflation, as measured by the Harmonised Index of Consumer Prices, fell in May to 2.7%. Euro area GDP for the first quarter of 2011 grew by 2.5% in year-on-year terms and by 0.8% when measured against the previous quarter, according to Eurostat data (by comparison, GDP for the fourth quarter of 2010 rose by 1.9% year-on-year and by 0.3% quarter-on-quarter). The exchange rate of the euro against the US dollar depreciated during May. At its May 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 1.25%, the marginal lending rate at 2.00% and the deposit rate at 0.50%.
As regards the annual rate of HICP inflation, in May in the Czech Republic it increased moderately, to 2.0%, in Poland it rose to 4.3%, while in Hungary it slowed slightly, to 3.9%. According to Eurostat data for gross domestic product (GDP) in the first quarter of 2011, GDP in the Czech Republic grew by 2.8% year-on-year (after rising by 2.7% in the fourth quarter of 2010), GDP growth in Poland rose to 4.3% (from 3.9%), and GDP growth in Hungary fell to 2.2% (from 2.6%). The exchange rate of the Czech koruna, Polish zloty and Hungarian forint weakened against the euro in May. Key interest rates in the Czech Republic and Hungary remained unchanged. As for monetary-policy settings in the countries under review, the only modification in May took place in Poland. On 12 May 2011, Narodowy Bank Polski raised the base rate by 0.25 percentage point, to 4.25%.
Slovakia’s seasonally unadjusted GDP for the first quarter of 2011, measured at constant prices, increased by 3.5% year-on-year, according to SO SR data (in the fourth quarter of 2010, it also rose by 3.5%). The quarter-on-quarter increase in seasonally adjusted GDP was 1.0%. Overall employment in the first quarter was 2.2% higher than in the same period of 2010 and 1.5% higher than in the fourth quarter of 2010 (by comparison, employment in the fourth quarter rose by 0.5% year-on-year). GDP growth and the recovery in the labour market recorded in the first quarter of 2011 was faster than NBS had projected.
In terms of the output breakdown, the GDP figure for first quarter of 2010 reflected an increase in value added, mainly in industry, and a decline in value added in the sectors of construction and public services. The structure of economic growth on the expenditure side continued to be influenced mainly by rising external demand. Declining domestic demand was affected by developments in private consumption as well as general government consumption. The drop in consumption demand was to some extent offset by a rise in gross fixed capital formation; however, investment growth slackened slightly in comparison with the fourth quarter of 2010. Net exports made the largest positive contribution to GDP growth in the first quarter of 2011. The balance of payments current account improved moderately in the first quarter. In the year-on-year comparison, the current account went from a deficit to a surplus as all components, with the exception of the income balance, recorded stronger figures. Growth in external demand was reflected in rising exports and subsequently also in a higher trade surplus and lower deficit in the services balance. With the economy continuing to pick up, the labour market situation stabilised in the first quarter of 2011 and employment continued to rise in year-on-year terms. Labour productivity was also boosted by the economic upturn, but although its annual rate of growth remained positive (due to rising employment), it was lower than in the previous quarter. Nevertheless, labour productivity growth was faster than real wage growth. The pass-through of economic growth also resulted in the unemployment rate falling in comparison with the same period of the previous year. The financial situation of firms reflected the economic recovery, as corporate profits continued recording year-on-year growth. However, the annual rate of increase in the profits of non-financial corporations declined due to slower growth in corporate investment activities. The rise in profits of non-financial corporations was driven mainly by industry and to a lesser extent by trade.
In Slovakia, the annual rate of HICP inflation in May was higher than in April, at 4.2%. The higher rate reflected the annual rate of increase in prices of non-energy industrial goods and food prices as well as the moderately higher annual rise in services prices. As for industrial producer prices, their annual rate of increase slowed in April due mainly to a lower annual rise in energy prices for producers. In the EU as whole, by contrast, energy prices for producers continued to increase at a faster pace. Rising food producer prices pushed up the annual rate of change in manufacturing product prices. As for agricultural product prices, their annual rate of increase was lower in April than in March, largely due to a slower rise in prices of plant products. On the other hand, animal product prices in April recorded a higher annual rise.
The current account balance for April showed a deterioration on the previous month. The increase in the current account deficit was caused mainly by a fall in the trade surplus and to a lesser extent by a rise in the services balance deficit. As for positive contributions to the current account balance, they came from declines in the income balance deficit and in the current transfers deficit. Turning to the industrial production index, its annual rate of change increased in April, mainly due to higher production in manufacturing industry sector and to a lesser extent in the mining and quarrying sector. Construction production in April declined in year-on-year terms. As regards sales, their annual rate of growth in the selected sectors slowed moderately in April. The worsening of sales in industry and construction was offset to some extent by stronger sales in retail trade. The overall economic sentiment indicator rose in May in comparison with the previous month. The indicator was boosted by rising confidence in construction, retail trade and services, as well as an increase in consumer confidence. Confidence in industry was more subdued in May than in April, largely due to negative assessments about the level of finished product inventories.
The average nominal wage recorded a lower year-on-year increase in April than in the previous month, while the average real wage fell year-on-year. The lower annual wage growth reflected wage developments in all the sectors under review, except for the information and communication sector and the transportation and storage sector. Employment maintained its rising trend in April, with continuing employment growth in the sectors of industry, information and communication and selected market services. However, the decline in construction sector employment became more pronounced in April. The rate of registered unemployment fell slightly in April in comparison with the previous months, to stand at 12.9%.
Deposits of both non-financial corporations and households recorded a higher volume in April than in the previous month. Concerning deposits of non-financial corporations, an increase in term deposits with an agreed maturity of up to two years was accompanied by a decline in the most liquid deposits. By contrast, the increase in household deposits consisted mainly of a rise in demand deposits. The deposits of both sectors maintained an annual rate of growth in April, although the increase in deposits of non-financial corporations again declined in comparison with the previous month. The volume of lending to both sectors increased. The rise in lending to non-financial corporations encompassed loans of all maturities, but particularly short-term loans, which picked up as a result of the economic upturn. In general, the annual rate of increase in lending to this sector rose markedly. Lending to households also grew, with most of the new demand focused on house purchase loans. The expected rise in key ECB interest rates in April had been partially priced into market interest rates in March. Lending rates to non-financial corporations went up slightly in April, with the most pronounced rise seen in current account overdraft rates. Lending rates to households remained unchanged. The main rise in deposit rates occurred in deposits of non-financial corporations, across all maturities. The largest rise in household deposit rates occurred in longer-term deposits.
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