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Summary-Report on Economic Development in November 2009

The year-on-year inflation rate in the euro area measured by the harmonized index of consumer prices, reached 0.6 % in November (in October -0.1%) according to the flash estimate from Eurostat. In the third quarter of 2009, compared to the same period of the prior year, the economy of the euro area recorded a slight alleviation in the decrease to 4.1%. After five consecutive quarters of fall in GDP, the economy of the euro area showed an increase. The EUR exchange rate against USD appreciated in November on a month-on-month basis. In its December meeting, the Governing Council of the ECB decided to leave interest rates for the main refinancing operations and interest rates for overnight refinancing and overnight sterilisation transactions unchanged at levels of 1.00%, 1.75 % and 0.25 % respectively.

The economies of the Czech Republic and Hungary recorded accelerations in the year-on-year increase in prices in November[1]. In all the economies of the region, the effects of the economic crisis persisted in the third quarter of 2009. In Hungary, the decline in the economy deepened to 8 %. In the Czech Republic, the decline in the economy was alleviated, on a year-on-year basis, to 4.1 %. The Polish economy was the sole economy among all the EU states to preserve a positive economic development; however, this slowed down to 1%. The exchange rates of the Polish zloty and the Czech koruna appreciated against EUR in November compared to the previous month. The exchange rate of the Hungarian forint depreciated slightly against the euro. The key interest rates in Poland and in the Czech Republic remained unchanged. The Magyar Nemzeti Bank reduced the basic interest rate and at the same time it extended the interest rate band for refinancing and sterilisation instruments at about the basic interest rate to +/-1 percentage point.

The year-on-year inflation rate measured by the index of consumer prices (ICP) did not change in November in the previous month and remained at 0.4 %1. On a year-on-year basis, a further price decrease for industrial producers was recorded in October, mostly as a result of the repeated decrease in energy prices. The year-on-year decrease in industrial products slightly slowed down.

According to the reviewed data of the Statistical Office of the SR, the gross domestic product in the SR decreased in the third quarter of 2009 by 4.8 % in current prices compared to the decrease of 5.5 % in the previous quarter. From the perspective of net seasonal quarter-on-quarter development, GDP increased by 1.6 % in the third quarter, which confirms the continuation of the slight revival of economic activity recorded in the second quarter. From the production perspective, GDP development was linked to the decrease in added value mostly in services, while added value in the land management and building industry was growing and in industry it stagnated. From the aspect of use of GDP, the decline in the economy was influenced by the decline in domestic and foreign demand. The GDP growth was positively influenced by net exports, which was the result of the alleviation of the decrease in exports and the continuing low exports.

As a result of the development in labour productivity and wages, unit labour costs also recorded growth on a year-on-year basis in the third quarter. Compared to the previous quarter, however, the dynamic slowed significantly as a result of the slighter decrease in the real productivity of labour linked with the slighter growth in compensations per employee. The high dynamics of unit labour costs relate to the policy of companies striving to preserve the employment rate with the significant fall in labour productivity. Due to that, with the gradual renewal of economic growth, the dynamics should improve. In order to maintain sustainable growth, a moderate growth in unit labour costs will be required in the upcoming period to prevent any adverse effect of the impact of the wage costs on the competitiveness of Slovakia and the development of inflation.

Although economic activity revived slightly during the third quarter when compared to the previous quarter, unemployment continued to increase over the period. The impact of the economic crisis on growth in unemployment was partially inhibited by various scenarios of reduction in working hours and limitation on dismissals. The revival of economic growth will initially be reflected in the increased number of hours worked and only with a certain time-lag by resumed growth in employment and a decrease in the unemployment rate. The overall weakening of economic activity in the Slovak economy is related to the ongoing year-on-year decrease in the rate of profit of non-financial corporations. However, financial corporations have already recorded a slight year-on-year increase in profits.

The current account deficit deteriorated in October when compared to the previous month. The month-on-month current account deficit resulted mostly from the increase in the current transfers deficit and the lower surplus of the trade balance. By contrast, the decrease in the balance of services and the balance of revenues had a positive impact on development of the current account balance. The positive trend in development of the industrial production index also continued in October. The improvement in dynamics is largely the result of the underlying effect, because production stagnated on a month-on-month basis. Growing foreign demand still had a positive influence on industry. The business and consumer survey of industry in November again confirmed expectations of growing production and a slight improvement in the current demand indicator. These results, together with the improving external environment, also point to a slight increase in industrial production for the SR in the short-term horizon. In building production, the year-on-year decline deepened in October as the result of falling demand and the underlying effect of high production at the end of the prior year. The business and consumer survey in November confirmed an insufficient level of demand. Prevailing expectations of growing production were recorded for the first time but this development may not be permanent.

Revenues in selected sectors achieved a slight slowdown in the year-on-year decrease in October when compared to the previous month, as a result of the alleviation in the year-on-year decrease of revenues in industry. The year-on-year dynamics of revenues of entities in the sector of sales and maintenance of cars recorded a year-on-year decrease in acceleration when compared to September as a result of the continuing impact of the underlying effect of high revenues at the end of 2008. Consumer prudence in a period of lower economic activity is reflected despite the decrease in car prices. The economic sentiment indicator increased in November on a month-on-month basis. The development of this indicator was positively influenced especially by the increase of confidence in industry and increased optimism was also recorded in the services and building sectors. The consumer confidence indicator and the retail trust indicator both recorded a decline.

On average, the year-on-year dynamics of nominal wages in selected sectors decreased in October compared to September, and achieved a negative value. A nominal wage decrease was recorded for the first time in history. On average, employment in selected sectors decreased significantly in October on a year-on-year basis, while its dynamics were unchanged in comparison with the previous month. The rate of unemployment recorded in October attained 12.4 % and decreased slightly on the previous month.

In October, the volume of all types of deposits also recorded a decline. The most liquid overnight deposits decreased most significantly. The same development was also recorded in the sector of households and in the sector of non-financial companies. In particular, in the households sector, the development was influenced by the growing difference in the interest rates applicable to short-term and long-term deposits. For this reason, households were moving their money from deposits in M3 to long-term deposits (with an agreed maturity of more than two years). As far as loans were concerned, the slight increase in loans provided to the private sector continued, while the slight increase in loans to households was accompanied by a decrease in loans provided to other sectors (non-financial companies, other financial mediators). Even in October, the client interest rates did not reflect the development on the inter-bank market of the euro area. Interest rates on loans to non-financial companies as well as to households increased slightly. In the households sector, interest rates on consumer loans achieved a higher level this year, when banks most probably tightened the conditions more significantly in the form of increased margins due to the perception of increased risk. Interests on deposits were more or less stable.


The year-on-year inflation rates in Poland and in the SR, as measured by the HICP in November, are to be published on 16 December 2009 and in the afternoon of 17 December 2009 in the NBS Monthly Bulletin in November.

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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