Slovakia – November

Foreign trade performance has been rather lukewarm in the previous months and we do not expect a substantial deviation from this trend in September. Eurozone’s economic recovery is still fragile and currently also exposed to the slowdown from China. We expect foreign trade balance at around EUR 228 mil. in September, which is a more cautious estimate than the market consensus but below last year’s level.

After the dynamic growth of industrial production in July (11.9% y/y), IP surprisingly plunged to -0.5% y/y in August. Even though a slowdown was expected due to the summer holiday schedules for major plants in Slovakia, the scale of the change was unexpectedly large. We expect industrial production to have returned to positive growth in September and our forecast stands at 2.7% y/y. Our forecast is more conservative than the market consensus mainly due to perceived volatility of industrial sentiment as well as weaker performance of the German industrial sector (as Germany remains Slovakia’s main trading partner).

Low oil prices coupled with the ensuing lower energy prices are still the main reason for the lack of inflationary pressures in the Euro Area. Flash estimate shows that annual inflation in the Eurozone returned to 0.0% y/y in October. Slovak deflation deepened in September, driven down by the announced 3.9% cut in gas prices. Inflationary pressures are still largely absent, thus our October forecast stands at -0.5% y/y (both CPI and HICP inflation). Core inflation is expected at 0.0% y/y .

The Statistical Office will publish the flash estimate for 3Q15 GDP next Friday. Data for the third quarter released up to now have been mostly positive: industrial production (despite August’s slowdown, the running 3Q15 average thus far stands at 5.7% y/y), retail sales picked up and labour market improvement progressed further. On the other hand, foreign trade performance could have been significantly better. Slightly more conservative than the market consensus, we expect 3Q15 GDP growth of 3.2% y/y. Seasonally adjusted quarterly growth could thus reach 0.8% q/q.

Producer price decrease accelerated somewhat in September. We expect a milder fall in producer prices, reflected in our October forecast of -4.5% y/y.

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