Summary-Report on Economic Development in April 2009

The year-on-year rate of inflation measured by the harmonized index of consumer prices reached 0.6% in the euro area countries in April and remained unchanged when compared with March. According to the flash estimate of the Eurostat, the economy of the euro area decreased in the first quarter of 2009 by 4.6% on a year-on-year basis. The level of the exchange rate of the euro against the dollar did not change considerably in the course of April. The Governing Council of the ECB decided in its May meeting to decrease the interest rate for the main refinancing transactions of the Eurosystem by 25 base points and by 50 base points for the overnight refinancing transactions while the interest rate for the overnight sterilisation transactions remained unchanged. As of 8 October 2008 the interest rate for the main refinaning transactions of the Eurosystem decreased in total by 325 base points according to this decision.

Of the CEE countries the inflation accelerated in Poland and Hungary in April and decelerated in the Czech Republic. According to the flash estimate of the Eurostat, in the first quarter of the year the economy of the Czech Republic decreased by 3.4% and in Hungary it decreased by 4.7% on a year.on.year basis. After a rapid weakening of exchange rates in the region stopped in March, exchange rates of Poland, Czech republic and Hungary have appreciated since the beginning of April. Only the Czech National Bank decreased its key interest rates.

The year-on-year rate of inflation in Slovakia decreased from 1.8 % in March to 1.4 % in April. The year-on-year growth rate in foodstuffs prices decelerated and the growth rate in industrial goods prices excluding energy as well as in prices of services stagnated. The growth rate in energy prices accelerated. The year-on-year decline in prices of industrial production products and agricultural products deepened in March, the growth in building works prices decelerated and the prices of building materials decreased.

According to the flash estimate of the Statistical Office of the SR, in the first quarter of 2009 the GDP really decreased by 5.4% on a year-on-year basis and the total rate of employment decreased by 0.4% on a year-on-year basis. In the first quarter of the year, a rapid and deepening decline in the production and revenues was reflected in the first two months in the GDP development while the monthly data in March recorded deceleration in the decline of industrial production index, building production as well as in revenues of the industry, retail sector and the sale and maintenance of vehicles. The indicator of economic sentiment continued to decrease in April. Its development was negatively affected by the decrease in confidence in the services, building industry and by the consumers. What is positive is that a rapid decrease in indicator of the confidence in retail sector and industry stopped while in industry the expectations of foreign demand have improved for the first time since August 2008. Achieved current account deficit increased in March when compared with the previous month but the trade balance reached a slightly higher surplus while the negative year-on-year growth rates of exports and imports continued. The year-on-year growth of nominal wages decelerated repeatedly in March and a relatively considerable decrease of the rate of employment continued in the selected branches. Considering the growth of the consumer prices, the real wage only slightly exceeded the level of the same period of the previous year. The rate of registered unemployment returned to double-digit level (10.3%) in March after more than two-and-half-year period.

A slight increase in the volume of PFI claims against the private sector continued in March as a consequence of a higher increase of claims vis-á-vis households and a decrease of claims vis´á-vis non-financial corporations. A higher growth in the households loans was intended for purchase of real estates and for a consumption including purchase of a new car. Non-financial corporations limited short-term loans up to 1 year, on the other hand the volume of long-term loans slightly increased.

Further decrease in the ECB interest rates was partly reflected in the market rates (three-month EURIBOR) and subsequently in the decrease in interest on loans of non-financial corporations and partly in some types of loans in the household sector. A more considerable decrease in interest rates caused by overdrawal of current accounts and interest on low-volume loans continued in non-financial corporations. A trend of a slight decrease in interest rates of real estate loans and consumer loans continued in the sector of households. The change of interest on consumer loans was probably affected by the change in structure when the majority of loans was granted for a specific purpose with a lower interest rate (most likely purchase of cars). Regarding interest on deposits, decrease in key interest rates and market rates was reflected in the decrease of interest rates in all types of deposits, with more intensity in the household sector. Almost full extent of ECB key rates reduction was reflected in the interest rates of households´long-term deposits.

Jana Kováčová
Spokesperson of the NBS

National Bank of Slovakia
Communications 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

Reproduction is permitted provided that the source is acknowledged.