Summary-Report on Economic Development in June 2009

The year-on-year rate of inflation measured by the harmonized index of consumer prices reached -0.1 % in the euro area countries in June and slightly decreased when compared with May. The level of the exchange rate of the euro against the dollar did not change considerably in the course of June. The Governing Council of the ECB during its meeting in July decided 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, inflation slowed down in the Czech Republic and in Hungary in June, but the price level remained unchanged in Poland. Weakening of exchange rates in the region from the beginning of the month stopped in the second week of June and the Czech crown and Hungarian forint recorded more or less an appreciation trend. The exchange rate of the Polish zloty was an exception and recorded a more volatile development in comparison to these currencies. The key interest rates were reduced only by the Narodowy Bank Polski which decreased its reference interest rate by 0.25 of a percentage point.

The year-on-year inflation rate in Slovakia decreased in June to the lowest value from the beginning of the HICP monitoring to the level of 0.7% (by 0.4 of a percentage point). The HICP inflation reported a lower value than the NBS´s expectations, above all as the consequence of deepening of the year-on-year decline in the industrial goods prices excluding energy and foodstuffs prices as well as a slower than expected growth rate of the fuel prices. In June the prices for services continued the trend of a slight slowdown of the year-on-year growth rate. The energy sector was the only one where the year-on-year growth rate accelerated as a consequence of the development in fuel prices. The year-on-year decline in prices of industrial production products deepened in May, the growth in building works prices decelerated and the prices of building materials decreased. The fall of the previous months of the year-on-year decline in prices of agricultural products stopped in May.

Achieved current account deficit increased in May when compared with the previous month when the surplus of the trade balance of the previous months decreased and the negative year-on-year growth rates of exports and imports continued. The monthly data in May recorded deceleration in the decline of the industrial production index , the building production recorded a considerable reduction in its fall. The volume of industrial production continues to be low although in the area of a qualitative assessment of the current demand and industrial production expectations, the expectations of increasing production prevailed for the first time from September 2008. The year-on-year decline in the receipts of wholesale and retail continues to deepen. Other selected branches recorded a slight deceleration of the year-on-year decline in the receipts. The overall indicator of economic sentiment continued in a positive trend in June affected by the increase in confidence in the industry, services, and by consumers. The confidence in retail and building industry developed in a negative way.

In the monitored branches there was on average a considerable slowdown of the year-on-year growth rate of nominal wages in May when compared with April as a consequence of year-on-year decline in nominal wages in the industry, sale and repair of motor vehicles and in transport and warehousing. The growth rate of real wages also decreased in comparison to the previous month. Monthly data regarding the wages indicate a  slowdown of nominal wages for the whole economy. A relatively significant drop of employment continued in the monitored selected branches. The rate of registered unemployment reached 11.4 % in May and increased by 0.5 of a percentage point on a month-on-month basis.

A slight increase in the volume of PFI claims against the private sector continued in May as a consequence of a higher increase of claims vis-á-vis households and a decrease of claims vis´á-vis non-financial corporations. The household sector recorded an increase of loans intended above all for the purchase of real estates, the volume of consumption loans continued in the growth of the previous months, although in a considerably slower growth rate. Just as in the previous month, non-financial corporations restricted above all short-term loans. Additionally, in May the volume of the long-term loans also decreased.

May´s decrease of the ECB interest rates was partly reflected in the decrease of the market rates. The interest rates of the loans to non-financial companies recorded major increase in May and did not reflect a tendency of the decline in market rates in the euro area. This development was probably connected with higher risk surcharges as a consequence of unfavourable economic development. Interest rates of the household loans slightly decreased. Interest rates on consumer loans continued in the decreasing trend of the beginning of the year and the interest on real estate loans also slightly decreased when the interest rate on mortgage loans decreased. Regarding interest on deposits, in the area of non-financial companies a decreasing trend of previous months stopped and the interest rates slightly increased. The interest rates of the household loans remained on the level of the previous month in May.

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.