November Economic Summary from National Bank
The latest published statistics and confidence indicators indicate mounting risks to the pace of Slovakia’s economic growth. In a surprising adverse development, the unemployment rate in October increased by 0.4% (seasonally adjusted). It currently appears likely that economic growth will decline next year. In the Annex analysing the general government budget proposal, the negative impact on 2013 budget revenues of macroeconomic developments as currently estimated is calculated to be -€160 million. Reflecting the expenditure-side risks identified by the Fiscal Responsibility Board, the overall upside risk to the deficit target is estimated at around €140 million (or 0.2% of GDP).
In Slovakia, annual HICP inflation in October was moderately higher than in the previous month, at 3.9%. Looking more closely at the HICP, the effect of accelerating prices of processed food, unprocessed food, non-energy industrial goods, and services was dampened by a decline in annual energy inflation. Industrial producer price inflation was higher in September than in August, due mainly to an increase in the annual rate of change in producer prices of manufactured goods. The only component that declined was energy producer prices. The annual rate of increase in prices of construction work and building materials decelerated in September. Agricultural price inflation accelerated in September owing to increases in the annual rate of change of both crop and livestock product prices. As part of steps to make the central bank’s forecasting process more transparent, we have started to publish a comparison of projected and actual data for the HICP and its components.
According to the SO SR’s flash estimate, Slovakia’s gross domestic product for the third quarter of 2012 (at constant prices) grew quarter-on-quarter by 0.6% (following growth of 0.6% in the second quarter) and increased year-on-year by 2.2% (2.6% in the second quarter). Total employment remained flat in the third quarter compared to both the previous quarter and the same quarter of the previous year (whereas in the second quarter it rose year-on-year by 0.3%). Third-quarter developments in GDP and the labour market situation were in line with NBS expectations. With car production probably peaking during the third quarter, the economic sectors making the largest contributions to quarterly economic growth were services and energy as well as chemical industry and manufacture of metals. Estimated GDP growth not including the contribution of the automotive industry was, however, surprisingly positive in that quarter.
The balance of payments current account went from a deficit in August to a surplus in September. An increase in the trade surplus was dampened by an increase in the current transfers deficit, while other component balances remained largely unchanged. The annual growth rate of the industrial production index slowed further in September, and in construction production there was a more pronounced annual decline. Annual sales growth across the economy was slightly higher in September than in August, reflecting stronger sales growth mainly in sale of motor vehicles and wholesale trade, as well as favourable results in the information and communication sector. The positive sales developments in the economy were largely offset by lower annual sales growth in industry, transportation, and retail trade. As for construction sector sales, their long-running downward trend in year-on-year terms continued in September. The Economic Sentiment Indicator fell sharply in October, down towards the level recorded in November 2009. Sentiment deteriorated in industry, construction, services and also among consumers. Only the retail confidence indicator increased.
Annual growth in the average nominal wage was lower in September than in the previous month, with almost all sectors contributing to the deceleration; the only sector in which nominal wages increased was accommodation services. Employment in September increased marginally in year-on-year terms and therefore its annual rate of change was slightly higher than in the previous month; nevertheless, employment developments remain extremely subdued. Employment declined in most sectors, but in the case of industry the annual rate of decline was less pronounced in September. The rate of registered unemployment in October was 13.7%, which adjusted for seasonal effects represented a month-on-month increase of 0.4 percentage point; this reflected a weakening of economic activity in Slovakia’s most significant trading partners, a deterioration of expectations among business entities, and probably also employers’ concerns about the Slovak labour market becoming less flexible.
Looking at private sector deposits in September, deposits from non-financial corporations declined month-on-month while deposits from households increased only moderately. In the case of deposits held by non-financial corporations, sight deposits fell markedly and term deposits also declined to some extent. The annual rate of change in the amount of corporate deposits was again negative in September, but less so than in the previous month. As for household deposits, a month-on-month increase in sight deposits was dampened by a fall in term deposits. The annual rate of growth in household deposits has been gradually decreasing. In bank lending to the private sector, the outstanding amount of loans to the non-financial corporations sector has been somewhat volatile, increasing moderately in September after falling sharply in the previous month. The annual rate of change in the stock of corporate loans declined in September for a second successive month, after previously increasing every month for almost two years. Lending to the household sector has been more stable, and the outstanding amount of loans to households continued to increase in September in both year-on-year and quarter-on-quarter terms. Housing loans constitute the largest share of loans to households. Lending rates for non-financial corporations varied between loans according to their purpose. Interest rates on operating loans fell in September to an all-time low. As regards lending rates for households, interest rates on housing loans declined and in the case of mortgage loans they fell to a historical low. Deposit rates for non-financial corporations remained largely unchanged in September while those for households were reduced in line with market rate developments.
The annual rate of euro area inflation as measured by the Harmonised Index of Consumer Prices was 2.5% in October, lower than in the previous month. According to Eurostat’s flash estimate, euro area GDP for the third quarter contracted by 0.6% in year-on-year terms and was 0.1% lower than GDP for the previous quarter (which itself shrank by 0.4% year-on-year and by 0.2% quarter-on-quarter). The exchange rate of the euro against the US dollar appreciated during October compared to its level at the end of September. At its meeting on 8 November 2012, the ECB’s Governing Council decided to leave the key ECB interest rates unchanged, with the main refinancing rate standing at 0.75%, the marginal lending rate at 1.50% and the deposit rate at 0.00%.
In the Czech Republic, annual HICP inflation increased in October in comparison with the previous month, to 3.6%, while in Hungary and Poland it declined to 6.0% and 3.4%, respectively. In both the Czech Republic and Hungary the annual rate of decline in GDP became more pronounced in the third quarter, according to Eurostat’s flash estimate. Czech GDP contracted by 1.5% (after shrinking by 1.0% in the second quarter) and Hungarian GDP declined by 1.6% (after a contraction of 1.4%). The data for Poland were not available. The Czech koruna and Hungarian forint appreciated against the euro in October, trading higher at the end of the month than at the end of September, while the Polish zloty weakened against the single currency.
Among the central banks of these central European countries, the Magyar Nemzeti Bank changed its monetary-policy settings in October, cutting its base rate by 25 basis points, to 6.25 %, with effect from 31 October 2012. Česká národní banka and Narodowy Bank Polski decreased their base rates at the beginning of November, to 0.05% and 4.5% respectively.
Source: National Bank of Slovakia