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Slovakia: December 2008

Wed, Dec 3 2008, 15:24 GMT
by Mária Valachyová

Erste Bank der oesterreichischen Sparkassen AG

Price development and real economy

Annual inflation will continue in its declining tendency through November, in our view. On the monthly basis, expected increase in prices of tobacco and food will be into large extent compensated by the cheaper prices of fuel. We expect gradual decline in inflation over coming months as the pressure on energy prices eased with the steep decline in oil prices. As usually, there is higher uncertainty about January inflation figures, as some services are re-priced at the beginning of each year. We expect euro-changeover effect to be contained, at 0.3pp respectively. Harmonized inflation should thus stay below 4 % in 2009 and CPI below 4.5%.

Industrial production increased by solid 5.5% y/y in September. Due to weaker foreign demand we expect slowdown in the growth rate in October to 4.4% y/y, which - if confirmed, would be given circumstances a good figure. Trade balance will in our view again finish in surplus, thanks to lower prices of oil and high import dependency of the key Slovak industries. On Thursday we will see a detailed structure of 3Q GDP growth, which stood at 7.1% y/y. We expect domestic demand to be main driver.

Koruna and monetary policy

The Slovak central bank followed the ECB step and cut its key rate by 50bp to 3.25 % ahead of its regular end-ofmonth session. The ECB is expected to cut rates by another 50bp on December 4, and the NBS is likely to repeat the step again ahead of its regular session, probably already next Tuesday (the regular session is scheduled on December 19th). The koruna witnessed higher volatility in past month; although far smaller than neighboring currencies in the region thanks to euro adoption shield (the koruna will reach the level of conversion rate 30.1260 SKK/EUR by the end of the year).

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Published on  Wed, Dec 3 2008, 15:28 GMT