Summary-Report on Economic Development in October 2009

The year-on-year rate of inflation in the euro area measured by the harmonized index of consumer prices remained negative in October and reached -0.1 % (in September -0.3 %). According to the flash estimate of the Eurostat, the decline in the economy of the euro area reduced in the third quarter of 2009 to 4.1 % when compared with the same period of the previous year. In October, the level of the exchange rate of the euro against the dollar strengthened on a month-on- month basis. During its meeting in October the Governing Council of the ECB decided that the interest rate for the main refinancing transactions and the interest rate for overnight refinancing and overnight sterilisation transactions would remain unchanged at the levels of 1.00%, 1.75% and 0.25%, respectively.

The economies of Poland and Hungary recorded a slowdown in their year-on-year increase in growth in September while the Czech Republic recorded a deepening of the year-on-year decline in prices. In the third quarter of 2009, according to the flash estimate of the Eurostat, the decline in the economy in the Czech Republic deepened by 4.1% on a year-on-year basis and that of Hungary by 8% when compared with the same period of the previous year. The exchange rate development of the Polish zloty and the Hungarian forint against the euro was relatively volatile during October, however, both currencies weakened slightly at the end of the month. The exchange rate of the Czech koruna depreciated during nearly the entire month. The key interest rates of Poland and the Czech Republic remained unchanged. The Magyar Nemzeti Bank decreased its key interest rate. This was the fourth decrease in interest rates during the period of the last four months.

The year-on-year rate of inflation in Slovakia slowed by 0.1 of a percentage point in October when compared with the previous month and declined by 0.1% for the first time in history on a year-on-year basis. This development was caused above all by the significant slowdown in the year-on-year growth rate of energy prices, foodstuffs and prices of services, while in energy prices a base effect in the price of heating continued to have an impact. A negative year-on-year growth rate of industrial goods prices excluding energy slightly decelerated. In the area of production costs the year-on-year decline in the price of products of industrial producers persisted in September which was caused by the continued decrease in prices of energy and mineral resources. The year-on-year decrease in industrial product prices slightly decelerated.

According to the flash estimate of the Statistical Office of the SR, the real gross domestic product declined in the third quarter of 2009 by 4.9% in stable prices on a year-on-year basis and the overall employment rate declined by 3.7% on a year-on-year basis. GDP development was in line with expectations, a decline in the employment rate was slightly higher when compared with anticipations.

In September the positive balance of the current account slightly improved when compared with the previous month. Within the structure there was above all an increase in the trade balance surplus caused by a significant month-on-month increase in exports which outpaced the increase in imports. This trend continued in September in the positive growth of the industrial production index.

The month-on-month increase in production was sufficiently strong to eliminate the anticipated worsening of the year-on-year growth rate as a consequence of high production in September 2009. Industry continued to be positively affected by increasing foreign demand. The October business and consumer survey researching prosperity in the industry sector confirmed the persistance of anticipations of increasing production and an increase in the indicator of current demand in Slovakia and abroad. In September, building production again significantly declined after four months on a year-on-year basis above all due to the influence of the base effect.

The October business and consumer survey researching prosperity gave evidence of low although probably stabilized demand and expectations of only mildly declining production. Total receipts in the selected sectors recorded a moderate deepening of a negative year-on-year growth rate in September as a consequence of acceleration in the year-on-year decline in the receipts of industry when compared with the previous month. The indicator of economic sentiment increased in October on a month-on-month basis. The indicator´s development was positively influenced above all by confidence enhancement in the services and industry sectors as well as in the retail sector and building industry. Worsening occurred only in consumer confidence when the indicator of consumer confidence recorded a decline after six months of positive development.

The average year-on-year growth rate of nominal wages for the selected sectors remained almost unchanged in September when compared with August. A slowdown in the growth of nominal wages in the industry sector and in the activities of restaurants and beverage service businesses, particularly a decline in the nominal wages in the building industry, was offset by a more rapid growth rate in other sectors. The average rate of employment decreased considerably in the selected sectors in September while its growth rate did not change when compared with the previous month. The rate of recorded unemployment reached 12.5% in September which showed an increase when compared with the previous month.

The development of deposits was different in the sector of non-financial corporations and in the household sector. The deposits of non-financial corporations increased while the deposits of households recorded a negative trend. The volume of loans to the private sector continued to increase in September, although more slowly when compared with the previous month. This development was affected mainly by consistent growth in loans to households while real estate loans mostly increased. The volume of consumption and other loans also slightly increased. The volume of newly-granted real estate and consumption loans decreased. There was a slight decrease in the area of loans to non-financial corporations.

Despite relatively stable rates in the interbank market of the euro area, there was a slight increase in client deposit rates and loans in both sectors. In the area of loans to non-financial corporations the difference between client deposit rates and interbank market rates increased despite a low level of interest which could have been affected by a raised perception of risk. The trend in interest rates for household loans differed according to the individual types of loans. The interest rates of both consumer and real estate loans decreased. The interest rates of other loans and small business loans increased. The interest rates of deposits did not change considerably in September. There was only a slight increase in the interest rates of the deposits of non-financial corporations and households in the area of long-term deposits.

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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