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Slovakia: Monthly forecast

Price development

Fri, Oct 5 2007, 08:11 GMT
by Mária Valachyová

Erste Bank der oesterreichischen Sparkassen AG

Price development

In September, we expect consumer prices to increase by 0.2% on the month, reflecting higher prices of food (namely of milk products) and services. That is a notch higher than the consensus of the market. Due to the lower base from year ago the annual inflation will jump to 2.8% from 2.3% in August. Harmonised inflation will likewise increase to 1.6% y/y, up from 1.2% seen in August. However, positive inflation outlook remains unaltered; we expect Slovakia to keep on meeting the Maastricht inflation criterion until the time of euro preparedness evaluation (i.e. till spring 2008).

Real economy

August production figures will likely be distorted by the summer holidays in car factories. We expect industrial production to slow down to 10% in August from extraordinary 19% growth seen in July (temporary increase in production of energy stood behind the July’s rise). Foreign trade should mimic lower industrial production in August, resulting in a deficit of SKK 2.4bn. Consumer spending should remain strong (the Eurostat already published retail sales growth at 5.2% y/y, though using different methodology than the Slovak Stat Office).

Implications for koruna and monetary policy

The koruna eased in past weeks due to increased risk to the timely euro adoption, connected to the Eurostat request to include debt of highway and railway companies and public media to fiscal balances (increasing deficit for 2006 and to lesser extent for the following years). The exact extent of the revision is still not known, making the markets jittery at the moment, although MinFin officials suggested the revision for the 2007 (relevant for euro adoption) at 0.2-0.3% of GDP, which would not be significant threat to the meeting of the fiscal criteria. Once the final verdict of the Eurostat will be known, we would expect renewed appreciation of the koruna. Official interest rates should stay unchanged in October for the sixth month in a row. Despite positive inflation outlook, there exist inflation risks for 2008, keeping the NBS in cautious stance. Hence, we pinpoint stable interest rates at the end of October.

• Download full Slovakia:Monthly Forecast

Published on  Fri, Oct 5 2007, 08:08 GMT

Archive

• Food and fuels have likely continued to weigh on inflation in June
  Published On Mon, Jul 7 2008, 15:18 GMT
• March 2008
  Published On Fri, Mar 7 2008, 09:27 GMT
• Changes over previous version
  Published On Fri, Feb 8 2008, 10:50 GMT
• Price development
  Published On Fri, Dec 7 2007, 08:36 GMT
• Price development
  Published On Fri, Oct 5 2007, 08:11 GMT

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