Report on Economic Development in May 2010 - Summary

In the first quarter of 2010, the economic recovery in the euro area slightly accelerated. The year-on-year growth of the gross domestic product represented 0.6% in comparison with the decline of 2.1% in the last quarter of 2009. Quarter-on-quarter, the economy of the euro area increased by 0.2% when compared to the growth of 0.1% in the last quarter of 2009. The year-on-year inflation rate in the euro area measured by the harmonised index of consumer prices increased to 1.6% in May (1.5% in April). The euro exchange rate against the American dollar continued to depreciate also in May. During its June meeting the Governing Council of the ECB decided that the interest rate for the main refinancing operations and the overnight refinancing and overnight sterilization operations would remain unchanged at the level of 1.00%, or 1.75% and 0.25% respectively.

The ongoing recovery of the economic activity in the first quarter of 2010 was present also in the Central European countries. The Polish economy increased year-on-year by 2.8% (the same as in the last quarter of 2009). The year-on-year dynamics of the gross domestic product in the Czech Republic reached 1.1% (when compared to the decline of 3.2% in the fourth quarter of 2009). The decline of the Hungarian economy mitigated to 0.9% (in comparison to 4.6% in the fourth quarter of 2009 ). The year-on-year rate of inflation in Poland measured by the harmonised index of consumer prices decelerated to 2.3% in May 2010 and that of Hungary to 4.9%. The growth of the price level in the Czech Republic slightly accelerated to 1.0%. Month-on-month, the exchange rates of the Czech koruna, the Polish złoty and the Hungarian forint depreciated against the euro in May. Only Česká národní banka changed the interest rates in May, having decreased its two-week repo tender by 0.25 of a percentage point. The key interest rates in Poland and Hungary remained unchanged.

The Slovak economy continued recovering its economic activity also in the first quarter of 2010. As a result, an economic growth was recorded on a year-on-year basis. According to the reviewed data of the Statistical Office of the SR, the gross domestic product in comparison to the same period last year increased at constant prices by 4.8%, when compared to the decline of 2.6% in the fourth quarter of 2009 (seasonally unadjusted). Seasonally cleaned, the quarter-on-quarter economic growth represented 0.8% in comparison to the last quarter of 2009 (2.0%)

From the production point of view, the GDP development in the first quarter was influenced by the increase of the added value, particularly in agriculture, industry and business and public services. The structure of economic growth on the GDP expenditure side was influenced primarily by the growing foreign demand and only by a moderate increase of domestic demand. Within the consumption demand, the growth of final consumption of public administration accelerated, while the private consumption recorded only a moderate growth. The decline in investments continued. However, when compared to the previous quarter, it mitigated. The recovery of the foreign demand enabled the acceleration of the export dynamics and the year-on-year improvement of the foreign trade balance.Thus, the net export contributed positively to the GDP growth. Jointly with the ongoing recovery of the economic growth and the employment slump, the labour productivity continued to increase. In the first quarter of 2010, the growth of real labour productivity significantly outstripped the growth of real wages. Unit labour costs in the first quarter of 2010 declined on a year-on-year basis due to the significantly higher year-on-year dynamics of labour productivity growth, when compared to the more moderate dynamics of the growth of compensations per employee. Despite the recovery of the economic activity, the employment in the first quarter declined and the rate of unemployment continued to grow. The overall recovery of the Slovak economy was reflected in the year-on-year increase of financial and non-financial corporations´ profitability in the first quarter, owing to the increase of the positive economic result both of financial and non-financial corporations.

The year-on-year inflation rate in Slovakia measured by the harmonised index of consumer prices (HICP), when compared to the previous month, did not change in May and remained at the level of 0.7%. In May, the year-on-year decline of energy prices slowed down as a result of the increase in the year-on-year dynamics of fuel prices. A slight acceleration of the year-on-year dynamics of food prices was influenced by the acceleration of growth of foodstuff prices with a slowdown of growth of non-processed foodstuff prices. Prices of industrial goods excluding energy prices and prices for services remained unchanged on a year-on-year basis. In April, the year-on-year deceleration trend in prices of industrial producers still persisted. A slight acceleration of the year-on-year growth was recorded in prices of construction works. The year-on-year dynamics of prices of agricultural products increased in comparison to the last month and was thus slightly positive.

The achieved current account balance improved in April when compared to the previous month by reaching a modest surplus. The positive development in the current account balance was affected mainly by the increase of the surplus in the trade balance due to the export dynamics being significantly higher than the import dynamics.

The continuing regeneration of export activity was reflected in the growing index of industrial production. In April, the growth of industrial production was significant, as a result of increased dynamics of industrial production, above all in these sectors: manufacturing of transport equipment and manufacturing of machines and equipment. The year-on-year decline in construction industry again mitigated considerably when compared to the previous month, particularly due to several infrastructure projects. The year-on-year dynamics of the growth in revenues in selected sectors accelerated in April, mostly as a result of the positive revenues development in the industrial sector. The overall indicator of economic sentiment decreased in May, in comparison to the previous month. The indicator´s development was negatively influenced mostly by the drop of confidence in retail, services and in the consumer confidence. The confidence indicator in the construction industry remained unchanged, compared to the previous month. The confidence indicator in industry recorded a positive development, primarily due to the decline in the stock of industrial goods.

The year-on-year dynamics of the average nominal wages increased in April, when compared to the previous month, while the year-on-year dynamics of the real wages growth decreased slightly. On average, the negative year-on-year dynamics of unemployment in individual sectors mitigated also in April. The most significant deceleration of the decline when compared to the same period of the previous year was recorded in wholesale, industry, information and communication sectors and in the selected market services. The rate of registered unemployment reached a decrease of 12.5% in April, when compared to the previous month.

The deposits by sectors in April reported an increase both in non-financial corporations and households. The year-on-year dynamics of deposits of the non-financial corporations increased, while the negative dynamics of household deposits mitigated when compared to the previous month. In April, loans to the private sector decreased month-on-month, mostly owing to the decline in loans to non-financial corporations. The volume of loans to households slightly increased. Loans to households increased on a year-on-year basis. However, the dynamics of loans to non-financial corporations remained slightly negative. As to the development of clients´ interest rates on loans, a reduction in client interest rates on loans to households has been recorded with the most significant reduction of interest rates on loans for real estate purchases. Interest rates on loans to non-financial corporations increased slightly. Clients interest rates on deposits in both sectors stagnated in April. Due to the persisting crisis, a decline of the year-on-year dynamics in the volume of claims of factoring companies, leasing companies and consumer credit companies against the private sector continued also at the end of the first quarter of 2010.

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 2168,+421-2-5865 2168, +421-2-5787 2169, 421-2-5865 2169
Internet: http://www.nbs.sk

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