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Report on Economic Development in October 2010 - Summary

The year-on-year inflation rate of the euro area measured by the harmonised index of consumer prices (HICP) was 1.9% in October (1.8% in September). The gross domestic product of the euro area in the third quarter of 2010, according to Eurostat’s preliminary data, increased year-on-year by 1.9% (1.9% in the second quarter) and quarter-on-quarter by 0.4% (1.0% in the second quarter). The euro exchange rate against the US dollar appreciated during October. At its November meeting, the ECB Governing Council decided that the main refinancing rate 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 the Czech Republic, the year-on-year HICP inflation rate remained unchanged in October at 1.8%. Meanwhile, in Hungary and Poland the price level compared to the same period last year accelerated to 4.3% and 2.6%, respectively. According to Eurostat’s flash estimate for the third quarter of 2010, GDP in the Czech Republic increased year-on-year by 3.0% (2.5% in the second quarter) and GDP in Hungary went up by 2.1% (0.5% in the second quarter). When compared to the previous month, the exchange rates of the Czech koruna, Polish zloty and Hungarian forint against the euro appreciated slightly, despite their volatile development in October. The key interest rates in the Czech Republic, Poland and Hungary remained unchanged in October.

In Slovakia, the annual HICP inflation rate was 1.0% in October, representing a slight decrease compared to the previous month. The lower annual HICP growth rate reflected a slowdown in dynamics of basic inflation structure components. Energy prices declined at a moderately slower pace, while the rise in prices of food and services decreased year-on-year. The annual decline in prices for industrial goods without energy accelerated modestly. As a result of rising fuel prices, the year-on-year decline in energy prices slowed. The sharper year-on-year drop in industrial producer prices in October was influenced primarily by a larger year-on-year decrease in energy prices. Raw material prices and water/sewerage rates decelerated mildly year-on-year. Prices of industrial products increased slightly in October and the year-on-year dynamics of prices of agricultural products remained strong. In comparison with the same period last year, prices for construction works increased, while prices for construction materials decreased.

According to the flash estimate by the Statistical Office of the Slovak Republic, Slovakia’s gross domestic product at constant prices (not seasonally adjusted) increased in the third quarter of 2010 by 3.7% year-on-year (compared with 4.2% in the second quarter). The seasonally-adjusted GDP increased by 0.9% in quarter-on-quarter terms. Total employment, compared to the same period last year, declined by 0.7% (by 2.3% in the second quarter) and it was 0.3% higher compared to the previous quarter. GDP growth was more moderate than expected, while employment figures were in line with projections.

The current account balance for September showed an improvement on the previous month. The month-on-month decline in the current account deficit was most significantly influenced by the trade balance, which moved from a deficit in August to a surplus in September. The improvement in the current account balance was also affected by the lower deficit in the balance of current transfers and in the income balance. By contrast, the balance of services deficit slightly deepened.

The year-on-year growth rate of the industrial production index fell slightly in September as a result of the base effect. While most sectors experienced a slowdown, the sector of motor vehicle production reported the strongest increase in growth. The year-on-year decline in construction production accelerated in September, after slowing down over the previous three months. Sales in September recorded a slight decrease in their year-on-year growth, largely owing to lower sales in wholesale trade and construction. The overall economic sentiment indicator increased in October compared to the previous month. The indicator’s development was positively influenced by an increase in confidence in industry, services, construction and retail. Compared to the previous month, the consumer confidence indicator worsened.

The year-on-year growth rate of nominal and real wages decreased in September in comparison with the previous month. A lower annual increase was recorded in the majority of sectors except transport and storage, restaurant and food services, industry, and motor vehicle sales. As for employment, the average year-on-year decline in selected sectors continued to ease in September. After a long period in decline, employment in industry and in transport and storage rose year-on-year in September, and employment in the other sectors under review fell at slower pace. The registered unemployment rate increased slightly in September, to 12.4%, compared to the previous month.

The situation in bank deposits, broken down by sector, remained the same in September, with the volume of deposits of both non-financial corporations and households declining. In year-on-year terms, however, deposits remained higher. Compared to the previous month, both sectors reported a decline mainly in term deposits with an agreed maturity of up to 2 years. Demand deposits of non-financial corporations fell markedly, but those of households went up. Lending to households expanded relatively strongly in September, with new loans comprising mostly housing loans and to a much lesser extent consumer loans. Loans to households continued to grow in year-on-year terms. Compared to the previous month, the volume of loans to non-financial corporations increased too. Customer interest rates on loans to non-financial corporations plummeted in September. Interest rates on investment loans recorded the most pronounced decline, while lending rates for households stagnated. Customer interest rates on deposits of non-financial corporations increased slightly, whereas household deposit rates fell moderately.

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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