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Slovak economic growth accelerated to record 9.8%

Analysis

Slovakia's economy grew a record 9.8% in the Q3 as companies boosted inventories to meet demand and households raised spending.

Expansion picked up from 6.7% in the second quarter, the Bratislava-based Slovak Statistical Office said today on its Web page. The data matches a preliminary estimate released on November 15. Growth in the $40 billion economy was bolstered in the Q3 by a start of commercial production at PSA Peugeot Citroen's carmaking plant as well completion of other investment projects aimed at exports.
This is helping Slovakia to expand faster than most European Union nations. „Building of inventories suggests companies are getting ready for an export boom,” said Maria Valachyova, an economist at Slovenska Sporitelna AS in Bratislava. „Exports will soon become the major driving force of the economy.” Gross capital formation, which in addition to investment includes change in inventories, rose 19.3%, compared with 1.2% in the second quarter. Inventories alone accounted for almost 4 percentage points of the Q3 growth, according to Slovenska's calculation.

Investments rose an annual 6.7% in the Q3 from 3.6% in the previous three months. The koruna was trading at 35.45 against the euro, close to a record high of 35.44, and up from yesterday's close of 35.51. Exports of goods and services rose 23.8% in the Q3, exceeding a 22.9% rise in imports. Household-consumption growth rose an annual 6.5% from 5.9% in the Q2, bolstered by a 2.7% growth in average real wages and 85,000 jobs added in the year ending September.

The acceleration of household spending suggests the central bank will probably raise borrowing costs at the its next meeting December 19 to make sure inflation will fall enough to enable Slovakia to adopt the euro in 2009, Valachyova said. She expects policymakers to lift the key two-week rate a quarter-point to 5%. Government consumption rose 1.2% in the Q3, slowing from 6.6% in the previous three months. The office raised its forecast for the full-2006 growth to 7.7% from 6.5%. In the Q1 of 2007, it expects the economy to advance 7.2%. (Bloomberg)

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