Summary-Report on Economic Development in May 2009

The fall of economy was accelerated again in the first quarter of 2009, when the gross domestic product decreased by 2.5% compared to the last quarter of the year 2008. On the year-to-year basis the economy of the euroarea experienced a fall of 4.8 %. The year-to-year inflation rate in the euroarea measured by the harmonised index of consumer prices (HICP) in May 2009 decreased to the level of 0.0% in comparison to April (0.6 %). The Exchange rate of euro and US dollar mainly appreciated. The Governing Council of the ECB during its meeting in June decided that the interest rate for the main refunding operations and interest rates for the overnight refinancing operations and the overnight sterilization operations would remain unchanged on the level of 1.00 %, respectively 1.75 % and 0.25 %.

The tendency of the slowing-down of the Central Europe economies continued in the first quarter of 2009, when the positive year-to-year growth was reached only in Poland (1.9%) from the countries of the region, the GDP in the Czech Republic deepened to 3.4 % and in Hungary to 5.4 %. The year-to-year harmonized inflation rate decreased in May in the Czech Republic and slightly also in Poland, the increase of prices accelerated in Hungary. In comparison to the previous month the exchange rates of the Polish zloty a the Czech crown slightly devaluated in May, on the contrary, the Hungarian forint appreciated to the euro. The key interest rates were reduced only by the Česká národní banka (Czech National Bank).

The consumer prices in Slovakia measured by the HICP increased by 0.1% in May on the month-to-month basis and the year-to-year inflation rate decelerated to the lowest value from the beginning of the HICP monitoring to the level of 1.1 % (from 1.4% in April). A deepening of the year-to-year decline was recorded in the prices of industrial goods without energies as well as foodstuff prices. Such trend was probably caused by low demand as well as by decline in import prices. In comparison to April, the increase of prices for energy decelerated and there was also a slight decline in prices for services. With respect to cost prices the decline in prices of Slovak industrial products continued both for the domestic market as well as for export and the price decline in agricultural products deepened.

The economic growth in Slovakia decreased by 5.6% year-to-year in the first quarter of 2009 and in comparison to the previous quarter the growth rate fell by 8.2 percentage points. The weakening of the economic activity in Slovakia was a result of a decline in the domestic and foreign demand, as well as, to a certain extent, the outcome of the interruption of the gas supply. The foreign demand showed a significant (double-figure) year-to-year decline in the first quarter, which was related to a decline in imports of the biggest business partners. Simultaneously, with the decrease in the economic growth in the first quarter of 2009 the labour productivity also decreased, however, it was not followed by the trend in wages and as a result of which the unit labour costs grew significantly. The average monthly salary increased in the first quarter and in comparison to the previous quarter it recorded a slight acceleration, which could be, to a cretin extent, influenced also by the compensation money payment. The overall employment rate decreased, influenced by a drop of employment mainly in the industry, however only slightly with respect to the fall of GDP. This was affected by an effort of employers to maintain the employment, namely by a shortening of the working time. When viewing the trend of employment per hours worked, there was a significant drop of this indicator. An aggravation of the economic trend was reflected also in a significant year-to-year reduction of the financial and non financial corporation profitability, when the profit created for the first quarter of 2009 was lower by almost 50% comparing to the same period of the last year, but it was still positive.

Reached deficit of the current account regenerated in April in comparison to the previous month, and the change of the March deficit to a slight surplus was caused mainly by an increase of a surplus of the trade balance. The negative year-to-year dynamics of import and export deepened in April. Reduction of the export activity was reflected in a deepening fall of the industrial production, most in the key automotive and electrical engineering industry. The construction production continued to fall too. The revenues of the selected fields recorded an acceleration of the year-to-year fall after a slight improvement in March. On the other hand, a decline in sales in the retail trade decelerated, and that corresponds to a continuously regenerating confidence in the retail trade.

Even in spite of an unfavourable trend of the revenues and production in the industry and civil engineering another deepening of the fall should not occur in the incoming months in regard of the progress of the confidence indicators. A fall of the economic sentiment indicator stopped in May after seven months of an intensive falling-off and for the first time since October 2008 its value increased. Its progress was positively influenced by an increase of the confidence in the industry, retail trade and mainly by an increasing confidence of consumers.

In comparison to March an acceleration of the year-to-year growth of salaries per chosen fields of industry occurred in April (mainly in the building industry and in the activities of restaurants and caterings). Employment in the selected fields continued to fall, but more moderately as in the previous month. It decreased the most in the industry, the information and communication sector, on the contrary, recorded an acceleration of growth. A deceleration of employment occurred in other fields, respectively they remained in declines from the previous month. The registered unemployment rate reached 10.9% in April and in comparison to March it increased by 0.6 percentage point.

A fall of the PFI receivables towards the private sector continued in March 2009 and mainly towards the non financial companies, by which the biggest decline was recorded in the short-term loans. The household sector continued in a growing tendency from the previous three months and the biggest share on this growth had the loans on the real estates.

An April reduction of the key ECB tariffs was reflected to the full extent in the market rates.

The decline was recorded mainly by the client rates from the non financial companies deposits, where almost the whole transfer of the key rates reduction was reflected in the current accounts and daily deposits and, similarly, the client rates from the household deposits also decreased, where the key rates reduction was reflected the most significantly in the interest rates from the long-term deposits over 1 year. As for the interest on loans, a decline of the interest rates was registered by the non financial companies, the interests on loans for the household did not react to the key rates reduction.

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

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