Slovakia – February

Major economic indicators

February will bring a number of macroeconomic data releases. Next week will start with the release of foreign trade data for December 2014. We expect the sluggish growth of exports and imports to have continued throughout December. Nevertheless, foreign trade balance should remain positive at around 220 mil. Euro, higher than the market consensus. We regard the market consensus to be overly conservative in this respect.

Industrial production (IP) growth was a disappointment in November, marking a decrease of 3.3% y/y. Yet, we think that the November figure presents an outlier and we expect industrial growth to have returned to the positive territory in December, albeit at a slower pace than in the first half of 2014. There are two important points regarding IP growth in December to be made here. Firstly, industrial production tends to be rather volatile towards the end of the year. Secondly, IP growth rate could reflect the high base from the preceding year.
Sentiment in the industry was unconvincing in December and performance of the German industry was also lukewarm. Germany is Slovakia’s main trading partner and its performance tends to have an impact on the Slovak economy.

Mild deflation that we observed in December is here to stay for a while. We expect a consumer price decrease of 0.2% y/y in January, driven by falling energy prices. Prices of energy have been decreasing in response to lower Brent oil prices. Core inflation should remain largely unchanged in January. Eurostat’s flash January estimate suggests that harmonised inflation in the Eurozone fell to -0.6% y/y. The steeper deflation was driven by a 9% y/y fall in energy prices. We expect inflation to remain low this year and only start increasing more convincingly in 2016.

The Statistical Office will publish the flash estimate for Q4 2014 GDP. In line with the market consensus, we expect GDP growth of 2.2% y/y. Seasonally adjusted quarterly growth could thus be at 0.4%. Data for the fourth quarter released up to now have been mixed: industrial production and foreign trade data were unconvincing, whereas retail sales growth and the continued labour market improvement suggest a better than expected performance of the economy last quarter.

Producer prices fell by 3.5% on average in 2014. We do not expect a change to the trend, therefore our forecast for January stands at -3.7% y/y.