Report on Economic Development in November 2010 - Summary
The gross domestic product of the euro area increased in the third quarter of 2010 by 1.9% year-on-year (compared to 2.0% in the second quarter) and by 0.4% quarter-on-quarter (1.0% in the second quarter), according to Eurostat’s data. The euro exchange rate against the US dollar depreciated during November. At its December meeting, the Governing Council of the ECB decided that the interest rate on the main refinancing operations would stay at 1.00% and that interest rates on the marginal lending facility and the deposit facility would also remain unchanged at 1.75% and 0.25%, respectively.
In Poland, GDP for the third quarter increased by 4.0% in year-on-year terms (3.8% in the second quarter); in the Czech Republic, it rose by 3.0% (2.5% in the second quarter), and in Hungary it went up by 2.1% (0.5% in the second quarter), according to Eurostat’s data. Compared to the previous month, the exchange rates of the Czech koruna, Polish zloty and Hungarian forint against the euro depreciated in November. The key interest rates in the Czech Republic and Poland remained unchanged in November. Magyar Nemzeti Bank decided to increase its base rate by 0.25 percentage points, to 5.50%.
In Slovakia, in the third quarter of 2010, GDP at constant prices (not seasonally adjusted) increased by 3.8% year-on-year (4.2% in the second quarter), according to the flash estimate of the Slovak Statistical Office. The seasonally-adjusted GDP increased by 1.0% in quarter-on-quarter terms. Total employment (according to the ESA 95 methodology) declined by 0.7%, compared to the same period last year (by 2.3% in the second quarter) and rose by a seasonally adjusted 0.4% compared to the previous quarter. GDP growth was more moderate than expected, while employment figures were in line with projections.
In terms of output, GDP development in the third quarter was influenced by an increase in value added, particularly in industry, construction and services. On the expenditure side, the GDP structure was mainly influenced by increasing external demand. The slight rise in domestic demand was largely due to an increase in inventories, while general government consumption rose only moderately. Household final consumption continued to fall, albeit more slowly than in the previous quarter. The year-on-year increase in gross fixed capital formation accelerated from the second quarter. The contribution of net exports to GDP growth was negative, as the increase in exports of goods and services was lower than that of imports, despite a steady rise in external demand. Thus, the lower trade balance surplus adversely influenced the total deficit of the current account, which deteriorated in the third quarter when compared with the same period last year. As a result of lasting overall positive developments in the economy and decreasing employment, labour productivity continued to grow. Compared with the previous quarter, however, the decrease in employment was lower and the rise in productivity slightly slower. Unit labour costs further declined year-on-year in the third quarter since, in year-on-year terms, growth in labour productivity was higher than the increase in compensation per employee. The increasing economic activity led to a decline in the rate of unemployment. The positive economic developments were reflected in the continued year-on-year increase in profits of financial and, especially, non-financial corporations over the third quarter. The profits of non-financial corporations were driven up mainly by results in industry, trade, and transport and storage.
The accelerated year-on-year decline in industrial producer prices in October resulted mainly from a higher annual fall in energy prices. A deceleration in annual inflation was also seen in prices of manufacturing products, prices of raw materials, and water/sewerage rates. By contrast, prices for construction works and construction materials reported a slight increase in comparison with the same period last year. Annual price inflation for agricultural products remained strong in October.
The current account balance for October showed an improvement on the previous month. The month-on-month decline in the current account deficit was most significantly influenced by an increase in the trade balance surplus. By contrast, the deficit in the balance of current transfers deepened. The income balance and the services balance remain almost unchanged in comparison with the previous month. As for the industrial production index, it increased year-on-year at a slightly faster pace in October, largely in relation to the steady growth in global demand. Construction production in October recorded a year-on-year increase after a long period of decline. Sales continued to increase, albeit slightly more slowly mainly owing to negative sales dynamics in industry, retail trade, and information and communication. The overall economic sentiment indicator increased in November compared to the previous month. The indicator’s development was positively influenced by rising consumer confidence and confidence in services, construction and retail. The confidence indicator for industry worsened in comparison with the previous month.
The year-on-year growth in nominal and real wages in October slowed to a greater extent than it had in the previous month. Annual wage growth was particularly subdued in industry and selected services. As for employment, the average year-on-year decline in selected sectors continued to ease in October. Employment in industry and in transport and storage maintained a rising trend in the year-on-year terms, and employment in the other sectors under review also showed positive developments. The registered unemployment rate decreased in October, to 12.3%, compared to the previous month.
The situation in bank deposits, broken down by sector, remained the same in October, with the volume of deposits of both non-financial corporations and households increasing. Positive year-on-year dynamics were preserved in both sectors. The non-financial corporations sector saw a shift away from the most liquid deposits towards fixed deposits, in particular towards deposits with an agreed maturity of up to 2 years. Households preferred longer-term fixed deposits, and the increase in deposits with an agreed maturity of over 2 years was partially offset by a decline in deposits with an agreed maturity of up to 2 years.
The growth of loans to the private sector consisted mainly of an increase in loans to non-financial corporations. The majority of the new loans had short-term maturities. Lending to non-financial corporations increased in year-on-year terms after a long period of decline. In the household sector, the relatively strong credit boom continued in October, driven mainly by an increase in real estate loans and only partially by consumer loans. Loans to households continued to grow year-on-year. In both the household and non-financial corporations sectors, customer lending rates declined slightly in October, while customer deposit rates rose moderately.
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