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Summary-Report on Economic Development in March 2009

The year-on-year rate of inflation measured by the harmonized index of consumer prices reached 0.6% in March ( 1.2% in February) when Slovakia recorded the third highest rate of inflation (1.8%) of the euro area countries. The exchange rate of the euro against the dollar appreciated in March. The Governing Council of the ECB decided in its April meeting to further decrease the key interest rates by 25 base points. As of 8 October 2008 the key interest rates of the ECB decreased in total by 300 base points according to this decision.

Of the CEE countries only Poland decreased its key interest rates during the course of March. The Magyar Nemzeti Bank and the Czech National Bank left the key interest rates unchanged. A rapid weakening of exchange rates in the region stopped. The rate of inflation increased to 4% in March (3.6% in February) in Poland and to 1.7% (1.3% in February) in the Czech Republic. In Hungary it decreased to 2.8% (2.9% in February).

The year-on-year rate of inflation in Slovakia decreased from 2.4% in February to 1.8% in March. In particular the prices of long-term consumption goods decreased (cars and electronics) and the growth rate in foodstuffs and energy prices decreased at the same time. A gradual slowdown in the growth of foodstuffs prices in the consumers´ market thus partially responded to a deepening decline in the prices of agricultural products. The decline in prices of industrial production products intended for both the domestic market and for export also deepened. Prices of flats also recorded a decline within the monitored price indexes when the average price for 1 square metre in the first quarter of 2009 decreased to the same level reached in the third quarter of 2007.

The recorded deregulation of inflation pressures and the slowdown or decline in prices were an inevitable consequence of weakened economic activity which is documented by a decline in revenues, a weakening of foreign-commercial activities, a decline in employment, a rise in unemployment as well as a slump in confidence indicators. The year-on-year growth rate of exports and imports was again negative in February. When compared with January, the volume of exports increased while the level of imports remained almost unchanged. This resulted in a surplus of the trade balance and a lower deficit of the current account. The industrial production index decreased on a year-on-year basis as the rate of decline remained approximately on the January level. The number of industrial orders continued to decline while the qualitative assessments of current demand and expectations of industrial production remained at minimal levels. Building production also decreased, although by a slower rate than in January. The year-on-year decline in the revenues of the wholesale and retail sectors deepened significantly.

Other selected branches also recorded a decline in the revenues, with the exception of the postal service and telecommunications. The overall indicator of economic sentiment which overcomes its negative minimums month by month decreased again in March. Households indicated higher future savings when compared with February expectations, probably with further reference to the pessimistic outlook for unemployment, the financial situation and the economy of the SR.

The year-on-year growth of nominal wages in monitored branches slowed on average in February when compared with January, mainly in the transport and warehousing sectors, postal services and industry. The growth of real wages slowed when compared with the previous month. Monthly data regarding wages indicates a moderate slowdown of nominal wages for the whole economy. Monthly data regarding employment indicates a considerable decline in employment. The rate of registered unemployment reached 9.7% in February and increased by 0.7 of a percentage point on a month-on-month basis.

An increase in the volume of claims of monetary financial institutions (MFI) vis-á-vis the private sector was recorded in February. The increase of claims vis-á-vis households contributed considerably to this development ( the decline was recorded in January) and claims vis-á-vis non-financial corporations also slightly increased, although at a slower rate than in January.

The decrease in the ECB key interest rates in February was also immediately reflected in the market rates. The clients´ rates for loans to non-financial corporations decreased and clients´ rates for loans to households also belatedly decreased. With respect to the purpose of loan application, the interest rates of operational and other loans for non-financial corporations decreased. On the other hand, the interest of loans intended for procurement of capital estates and investments of non-financial corporations increased (investment loans and real estate loans). This development was also reflected in the volume of granted loans while the volume of granted loans for operational activities considerably increased on a month-on-month basis. In the sector of households, the interest rates of consumer loans and real estate loans decreased in particular. Considering the volume, loans for housing showed significant increase and a moderate increase was recorded in consumer and other loans.

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

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