Slovakia – April, 2015

Major economic indicators

Last year’s foreign trade dynamics slowdown was not only noticeable in itself, but it meant that net exports contribution to Slovak GDP growth was almost non-existent (even mildly negative). We do not expect foreign trade dynamics to have picked up substantially in February. Yet despite the lukewarm development of exports, foreign trade balance for February should still remain positive and similar to its previous year’s value.

Following the more volatile turn of the year, industrial production seems to have become more stable and recorded a 2.4% y/y growth in January. We expect a similar development in February, whereby the industrial production growth rate could reach 2.3% y/y. Even though economic sentiment in the industry improved in February, it was followed by a decrease in March, suggesting that the improvement was only temporary. Thus, we keep our more cautious stance on industrial production and estimate a milder growth compared to the market consensus.

According to the flash estimate, Eurozone deflation softened in March to -0.1% y/y. Compared to January (-0.6% y/y) and February (-0.3% y/y), the improvement is rather noticeable. Even though energy prices are still at low levels, the ensuing deflationary pressures have become weaker.
We expect deflation to have softened in Slovakia, as well. Our forecast for the year-on-year development of consumer prices in March stands between -0.3% to -0.2%. The expected development in food prices as well as the increase in fuel prices that occurred during March (4.7%) could have contributed to a milder annual decrease of consumer prices in Slovakia. Harmonised inflation could follow a similar path – we expect March annual HICP in the range of -0.4% to -0.3%.
Core inflation could come at -0.1% to 0.0% y/y, thus also signalling an improving inflation outlook.

Producer prices fell by 4.4% y/y in February, exceeding the market expectations. For March, we expect a milder decrease of about 3.0% y/y.