Posted by on 4 Aug 2014. Filed under Business, Top news. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

Cushman&Wakefield: Economic Snapshot of Slovakia

Momentum is building - The Slovak economy expanded by 0.6% q/q in Q1 2014, up from 0.5% in Q4 2013. Underlying conditions for domestic demand appear favourable as consumer spending and government expenditure strengthened significantly and a contraction in investment was most probably a correction after a robust rebound in Q4 2013. Exports – typically Slovakia’s main driver of growth – have grown at a slower rate than imports in the last three quarters. Nevertheless, given the bright outlook for demand from the country’s main trading partners, especially Germany, this element of the economy is now expected to accelerate.

INVESTMENT GROWTH EASES

Bratislava (c) The Daily.SK

After a robust rebound in fixed investment in Q4 2013, a contraction was recorded in Q1 as the construction sector (which accounts for almost half of fixed investment) remained sluggish and the car industry has been affected by the lack of significant investment projects in the pipeline. Looking forward, business activity is expected to be boosted by strengthening exports but will be constrained by relatively tight credit conditions, with the ECB’s ‘funding for lending’ scheme unlikely to have a significant effect on corporate loan growth in Slovakia. Although scarce, credit will remain cheap thanks to another cut in ECB’s interest rate in June.

HEALTHY CONSUMER SECTOR
Consumer spending grew at the fastest rate in six years in Q1, at 3.1% y/y (1.5% q/q), driven by rising confidence and falling unemployment (12.8% in May compared to 14.3% a year earlier). In addition, fiscal austerity has been relaxed and inflation remained negative at -0.1% in June. These positive conditions resulted in retail sales growing by a robust 5.8% y/y in April, followed by more modest 1.6% in May.

OUTLOOK
GDP growth is expected to pick up to 2.5% in 2014 and 3.1% in 2015 as exports gain momentum and the consumer sector continues to recover from its prolonged weakness. Indeed, consumer spending is expected to grow by 1.6% and 2.2% in 2014 and 2015 respectively on the back of low inflation and a strengthening labour market. In addition, a shift from aggressive fiscal tightening in 2013 to a more expansionary fiscal policy this year, marked by payroll tax cuts and new infrastructure projects, will support the consumer. It will also boost the recovery of construction and thus fixed investment, which is already benefitting from improving external demand. Tight credit conditions, high unemployment and muted demand for cars – Slovakia’s main export product – are the main risks to growth.

Prepared by Cushman & Wakefield

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