Slovakia – March, 2015

Major economic indicators

GDP growth data for Q4 2014, including the detailed breakdown, will be released on 6th March. We do not expect a revision to the flash estimate of 2.4% y/y. The seasonally adjusted quarterly GDP growth should remain at 0.6%. The overall GDP growth for 2014 should be confirmed at 2.4% which presents the highest growth rate since 2011. We expect the released structure to confirm the role of domestic demand as the main driver of growth both in the last quarter of the year as well as in 2014 overall.

We expect the labour market improvement that we were observing throughout 2014 to have continued in the last quarter of the year, as well. Unemployment rate should decrease further, to around 12.8% in Q4 2014, thus bringing the average for 2014 down to 13.3%. Last year brought about a visible improvement in the labour market – lower unemployment, higher employment growth as well as a dynamic growth of real wages.

We expect industrial production growth in January to be around zero or mildly negative due to the volatile sentiment in the industry towards the end of last year and at the beginning of 2015, as well as the base effect from January 2014. Another factor to keep in mind is the volatility of industrial production around the turn of the year. However, industrial production growth should stabilise more from February onwards.

Eurostat’s flash HICP inflation estimate suggests an improvement from -0.6% y/y in January to -0.3% y/y in February. We expect Slovak inflation numbers to have remained the same in February as they were a month earlier. Deflation in Slovakia deepened from -0.1% in 2014 to -0.4% y/y in January 2015 (CPI inflation). Our forecasts for annual consumer price inflation and harmonised inflation in February thus stand at -0.4% and -0.5%, respectively. Core inflation could remain at -0.2% y/y.

Lower energy and fuel prices, driven by low oil prices, have been the main reason behind the deflationary developments both in Slovakia and the whole Eurozone. Cheap oil should still play a substantial role in the development of consumer prices, yet the scope of its impact should start diminishing soon.

Producer prices should continue to decline in February, at a rate of around 2% y/y.