Slovakia continues to be one of the fastest growing economies in the Eurozone
Earlier this month, the preliminary estimate for Q2 GDP was confirmed at 3.3% growth annually.
As expected, the print, an improvement over Q1’s 3.1% rise, was led by an increase in private consumption, which
has benefitted from a strong labor market. On the downside, growth in
exports tumbled due to a slowdown in the auto industry—one of the key
drivers of economic growth—as worker shortages persist amid record low
levels of unemployment. Despite bottlenecks in the car manufacturing
sector, business confidence climbed into positive territory following two
consecutive months of decreases. Consumer confidence also showed
slight improvement, rising to the highest level since December of last
year, albeit remaining in pessimistic territory.
• Resilient growth in EU trading partners should buoy exports and keep the
economy on a solid trajectory this year and next. However, the downward
trend in working-age population suggests growing pressures on the labor
supply going forward and poses a downside risk to long-term growth
potential. Our panelists project GDP will expand 3.2% in 2017, and
expect growth to accelerate to 3.5% in 2018, which is up 0.1 percentage
points from last month’s estimate.
• Harmonized consumer price inflation inched up to 1.6% in August, from
1.5% in July. Our panel expects harmonized inflation to average 1.3% in
2017. In 2018, the panel expects harmonized inflation to pick up to 1.9%,
which is unchanged from last month’s forecast.
The economy made some gains in the second quarter, according to data
released by the Statistical Office of the Slovak Republic (SOSR) on 5
September. GDP growth edged up to 3.3% annually, above the first quarter’s
3.1% print. The economy expanded at a faster pace on the back of a rise in
domestic demand underpinned by strong private consumption.
Led by a healthy labor market, private consumption grew 3.6% in Q2 (Q1:
+3.4% year-on-year), the fastest pace since Q4 2008. Also, the slowdown
in government consumption eased to a 0.1% contraction (Q1: -0.7% yoy).
However, fixed investment declined significantly, slumping a notable 6.7%
(Q1: +0.9% yoy) as ongoing worker shortages derail the auto industry’s
On the external front, export growth plummeted to 0.2% in Q2 (Q1: 8.6%
yoy), also caused by the slowdown in the all-important automotive industry.
Meanwhile, imports contracted 0.2% following two years of growth and a
stellar expansion in Q1 (Q1: 8.3% yoy).
On a quarter-on-quarter basis, the economy grew a seasonally-adjusted 0.8%
in Q2, which matched the previous quarter’s print.
The National Bank of Slovakia (NBS) projects that GDP will grow 3.2% in
2017 and 4.2% in 2018. FocusEconomics Consensus Forecast panelists
expect GDP growth to reach 3.2% in 2017, which is unchanged from last
month’s forecast. For 2018, the panel projects that economic growth will reach
3.5%, which is up 0.1 percentage points from last month.
In July, industrial production growth surged to 9.2% year-on-year, following
a modest increase of 3.1% in June. A double-digit expansion of over 10.0%
in manufacturing output led the upsurge, and healthy growth in electricity,
gas, steam and air-conditioning supply also contributed to the notable climb.
Expansions in these sectors offset the continued contraction in mining and
quarrying, which fell at a faster rate in July than in June.
On a monthly basis, industrial production contracted more severely in July than
recorded in the previous month (July: –3.3% month-on-month; June: –0.7%
mom). Nevertheless, annual average growth in industrial output jumped to
6.0% in July from 4.3% in June.
FocusEconomics Consensus Forecast panelists expect industrial production
to increase 4.6% in 2017, which is unchanged from last month’s forecast. For
2018, the panel sees industrial growth accelerating to 4.9%, which is down 0.1
percentage points from last month.
In August, consumer prices came in flat from the previous month, inching
down from a 0.1% rise in July. According to data released by the Statistical
Office of the Slovak Republic (SOSR), a decline in the prices for food and
non-alcoholic beverages, and clothing and footwear were behind the drop,
offsetting a rise in the prices for transport among other components.
Inflation moved in the opposite direction and inched up to a four-year high of
1.5% in August from 1.4% in July. Meanwhile, harmonized index of consumer
prices remained flat in monthly terms, as it was in July. Harmonized inflation,
on the other hand, moved up a notch to 1.6% in August, up from 1.5% in July.
This led to a continued rise in annual average harmonized inflation, which
edged up to 0.7% in August, following a rise to 0.5% in July.
The National Bank of Slovakia (NBS) expects harmonized inflation to be
1.2% in 2017 and to increase to 1.9% in 2018. FocusEconomics Consensus
Forecast participants expect harmonized inflation to be 1.3% in 2017, which
is unchanged from last month’s forecast. For 2018, the panel expects HICP
inflation to rise to 1.9%, which is also unchanged from last month’s estimate.