Slovakia – May, 2015

Major economic indicators

May brings a number of macroeconomic data releases. Next week will start with the release of foreign trade data for March. We expect the improvement observed in February to continue, albeit the dynamics are expected to be picking up only gradually. Foreign trade balance should remain positive at around 469 mil. Euro.

The pick-up in industrial production growth that has been observed so far this year should have continued in March. We expect IP to have grown at a rate of 4.0% y/y in March. Even though sentiment in the industry declined in March, it climbed back to its pre-drop value in April. Improving soft indicators from Germany also paint a more positive picture for the Slovak industry, given that Germany is our main trading partner.

Deflation softened in March, after hitting its lowest value thus far in February. We expect the softening in deflation to continue. Both the CPI and HICP index figures for April could reach -0.2% y/y. Core inflation is expected to remain largely unchanged compared to a year ago (0.1% y/y). Inflation pressures are reappearing, albeit at a slow pace. Even though energy prices are still at low levels, the ensuing deflationary pressures are diminishing. We keep our inflation forecast for this year unchanged, at 0.0% on average.

According to the flash estimate, Eurozone got out of deflation in April. Harmonised inflation for the Euro Area reached 0.0% y/y in April, up from -0.1% y/y in March. Slovakia is expected to follow suit in the next couple of months, yet a steadier increase in inflation rates is more likely to follow in 2016.

The Statistical Office will publish the flash estimate for Q1 2015 GDP. Data for the first quarter released up to now have been mostly positive: improving industrial production and foreign trade data, as well as continuation of labour market improvement. On the other hand, retail sales growth in the first two months of 2015 was rather unconvincing. In line with the market consensus, we expect GDP growth of 2.5% y/y. Seasonally adjusted quarterly growth could thus reach 0.7% in Q1 2015.

Producer prices have been decreasing at a largely steady rate in 2015. We do not expect a change in this trend and estimate a 3.1% y/y decrease in producer prices in April.