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Slovakia: 2Q08 GDP growth

Wed, Sep 3 2008, 09:43 GMT
by Mária Valachyová

Erste Bank der oesterreichischen Sparkassen AG

Economy grew by 7.6% in 2Q08, thanks to consumption and investments 

• * Statistical Office confirmed 2Q08 GDP growth at 7.6% y/y, in line with the flash estimate.

• * Similar to 1Q08, the economic growth was driven by domestic demand. Household consumption remained decisive but was not the only driver, as gross fixed investments contributed significantly to the growth as well, which is positive for the future economical prospects. More specifically, household consumption slowed down from 8.4% y/y in 1Q08 to 5.7% y/y in 2Q08, which diminishes the risk of demand inflation pressures. On the contrary, government spending growth has sped up to 8.9% y/y. Real wages (seasonally adjusted) rose annually by 4.8% and roughly equalled the real productivity growth. From the monetary policy point of view, it would be optimal if the wage growth was lower than productivity growth. However, the wage growth in 1H08 was affected by one-off adjustment of salaries in state administration at the beginning of the year instead of July (as it was a year ago). The wage growth rate should be back in line with productivity growth in the second half of 2008.

• * Despite slowdown, household consumption growth remains solid as higher consumption was facilitated by the employment growth (by 2.9% y/y in the ESA-95 methodology) and the real wage growth at 4.8% y/y. 

• * The growth of gross fixed investments accelerated to 9.6%, which - along with the inventory accumulation - contributed about 3pp to the overall growth (above our expectations). Similar to the 1Q08, net export did not add to the economic growth. Export of goods and services grew by 8.7% y/y in real terms, below our expectations and below the 9.0% import growth. We assume that the lower-than-expected export could be attributed to lower demand from the Eurozone. On the contrary, imports could have been affected by higher investment imports, as well as more expensive oil a import of strategic raw materials. 

• * For 2008, we keep our GDP forecast at 7.6% (for comparison, Statistical Office expects full-year growth at 7.9% y/y), which means a slowdown from 10.4% in 2007. In the second half of this year, the growth structure should be more balanced in 3Q08, driven by both domestic and foreign demand.

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Published on  Wed, Sep 3 2008, 09:43 GMT

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Erste Bank http://global.treasury.erstebank.com | Rainer.Singer@erstebank.at