Slovakia - Economic update

The most recent activity indicators pointed to lower domestic automotive industry production, mainly caused by the cyclical slowdown in European car sales. This negatively impacted industrial production as a whole. However, since exports from other sectors such as electronic products increased, the weaker performance of the automotive industry was not reflected in overall industrial exports. The new production capacity in the new plant of Volkswagen, and later during the year also of Jaguar Land Rover, will contribute to the production and export capacity of Slovakia. Non-industrial sales in the trade and construction sector performed strongly in July, which resulted in strong growth of aggregate sales. Confidence indicators are pointing towards some growth deceleration going forward. The overall Economic Sentiment Indicator decreased below its long-term average (to 97.7) in August. Moreover, consumers’ views on the future economic situation and future unemployment were unfavourable. This sentiment decline could indicate some correction of expected strong growth in the next six months.

Meanwhile, employment indicators are indicating a slowdown in job growth in Q3. Given the high job vacancy rate and low unemployment rate (6.6% in August), this implies increasing skilled labour shortages. To offset this, employers are increasingly recruiting foreign workers and people who were previously economically inactive (higher labour force participation). This rising tightness on the labour market is translating to higher wages. Although also boosted by variable wage components in the energy sector, annual wage growth in July reached 9.2%.

Headline HICP inflation rose to 2.9% yoy in August. The acceleration compared to July (2.6% yoy) was mainly driven by services price inflation. Air ticket prices and food prices have also been determining factor in overall inflation movements. We expect annual headline inflation to reach 2.8% for 2018 as a whole. House prices continue to rise but at a slower pace. Prices increased by 7% yoy in Q2 compared to 11.7% yoy in Q1 Eurostat data showed. This trend might continue due to implemented central bank measures aiming at maintaining financial stability in the context of double-digit growth of household loans in the past.