Summary-Report on Economic Development in August 2009

The year-on-year rate of inflation measured by the harmonized index of consumer prices reached a negative point in August and reached -0.2% (in July -0.7%). The euro exchange rate against the US dollar slightly appreciated in August when compared with July. The Governing Council of the ECB decided during its meeting in September that the interest rate for the main refinancing transactions and the interest rate for overnight refinancing and overnight sterilisation transactions would remain unchanged on the level of 1.00%, respectively 1.75% and 0.25%.

Of the CEE countries the year-on-year rate of inflation slowed only in Poland in August. Prices stagnated in the Czech Republic and the price level slightly increased in Hungary. A volatile exchange rate development resulted in the appreciation of the Polish zloty and the Czech crown and the depreciation of the Hungarian forint when compared with the last business day in July. Two central banks in the region, the Czech National Bank and the Magyar Nemzeti Bank decreased their key interest rates in August. The reference interest rate remained unchanged in Poland.

The current data, documenting the stagnation of the OECD economies but also a more considerable moderation of the economic decline of the USA and that of the euro area, indicate that the rate of economic decline in the global economy has reached its bottom, confidence is increasing, however, the recovery has been very fragile so far.

The year-on-year inflation rate in Slovakia decreased in August by 0.1 of a percentage point to the level of 0.5% and reached its lowest level historically. The HICP inflation decreased above all as a consequence of a lower growth rate of industrial goods prices excluding energy, processed foodstuffs and prices of services. The year-on-year decline in the prices of services deepened mostly and above all in the sector of transport, personal and recreation services. In the area of production costs the year-on-year decline in the prices of products of industrial production slightly deepened in July. The prices in building materials recorded a more considerable deepening of the year-on-year decline and the fall in agricultural product prices continued.

The real gross domestic product declined in the second quarter of 2009 by 5.3% in stable prices on a year-on-year basis and the overall employment rate declined by 1.3%. From the point of view of the production, the added value in industry and services deepened in particular. Investments and foreign demand declined considerably from the point of view of demand.

However, the economy recorded a growth of seasonally adjusted indicator of 2.2% on a quarter-to-quarter basis from which it is clear that the point of the local economic downturn was probably reached in the first quarter of 2009.

The current July data regarding the current account deficit confirmed its slight decrease when compared with June, above all as a consequence of having reached a surplus in the trade balance. The July index of industrial production recorded a year-on-year deepening of decline to which the key branches of industry contributed despite the anticipated increase in production. The revenues of the industry had a similar development. However, research of prosperity in the industry (business and consumer survey) conducted in August showed that the expectations of growing production continued to prevail and the indicator of supplies declined, which could lead, in connection with the stabilized external environment, to a moderate increase in production in the coming months. Decreasing construction sector activity contributed to the deepening of a year-on-year fall in building production and likewise the August research of prosperity (business and consumer survey) does not indicate a change in the development. Retail receipts in July recorded a comparable year-on-year decline with that of the previous month´s decline. The overall indicator of economic sentiment continued on a  positive trend in August when confidence in retail and services increased. Confidence in industry again recorded a negative development after several months of improvement.

The average growth rate of nominal wages for the selected branches did not change in July when compared with June. The growth rate of real wages slightly accelerated. Current developments in the selected branches indicate a slowdown in the growth of nominal wages for the whole economy on average for the third quarter 2009 when compared with the previous quarter. The rate of employment declined more quickly in July than in the previous month, mostly in the wholesale sector and in the activities of restaurants and beverage service businesses. The rate of recorded unemployment reached 12.1% in July and increased on a month-on-month basis by 0.3 of a percentage point in July.

The decrease in the private sector deposits continued in July when the shortest deposits decreased most considerably, probably as a result of the decline of their interest rates. Households tried to optimise the revenues from their deposits via depositing them in structured deposits with higher interest rates. Concurrently with the decline of deposits the growth of loans to the private sector continued although the growth rate of loans decelerated. The volume of loans to non-financial corporations continued in its decreasing trend while the volume of loans to the households continued to increase. This development was affected mainly by an increased interest in real estate loans in the last two months. The volume of consumption loans also slightly increased.

The interest rates on loans to non-financial corporations also continued their decreasing trend in July. They thus responded to the decrease in market rates. The interest rates of loans to small and medium-sized enterprises decreased most considerably. However, these loans have considerably higher interest rates than the loans to large enterprises. The interest rates of the household loans did not change substantially in July. Within individual types of household loans the growth in interest rates of consumer loans continued for the second month running and the decline in the interest rates of other loans also continued. The interest rates of real estate loans did not change in July.

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

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