SLOVAK ECONOMY SEES FASTEST GROWTH IN SIX YEARS

UNCLAS BRATISLAVA 000607

SIPDIS


FOR EUR/NCE ALEX MCKNIGHT

DEPT PASS TO USTR FOR RDRISCOLL

TREASURY FOR CHRISTOPHER GREWE

USDOC FOR MROGERS AND STIMMINS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD LO
SUBJECT: SLOVAK ECONOMY SEES FASTEST GROWTH IN SIX YEARS



1. SUMMARY. SLOVAKIA'S REAL ANNUAL GDP GREW BY 5.5 PERCENT
DURING THE FIRST QUARTER OF 2004, ITS HIGHEST EXPANSION IN SIX
YEARS AND THE SECOND STRONGEST RATE IN THE CENTRAL EUROPEAN
REGION. EXTERNAL DEMAND DROVE MOST OF THE GROWTH, BUT DOMESTIC
CONSUMPTION ALSO INCREASED DUE TO HIGHER REAL WAGES AND LOWER
INTEREST RATES. IN ADDITION, RISING FOREIGN DIRECT INVESTMENT
(FDI) RENEWED CONFIDENCE IN CAPITAL INVESTMENTS. IN CONTRAST,
FISCAL TIGHTENING REDUCED GOVERNMENT SPENDING. OVERALL, THESE
POSITIVE TRENDS ARE EXPECTED TO CONTINUE PROVIDING SLOVAKIA WITH
A BRIGHT ECONOMIC FUTURE. END SUMMARY.


2. SLOVAKIA'S REAL ANNUAL GDP GROWTH RATE OF 5.5 PERCENT FOR THE
FIRST QUARTER OF 2004 EASILY OUT-PACED THE MEDIAN MARKET FORECAST
OF 4.2 PERCENT. IN THE REGION, SLOVAKIA TRAILED ONLY THE POLISH
ECONOMY WHICH GREW AT 6.9 PERCENT. DURING 2003, THE SLOVAK GDP
INCREASED BY 4.2 PERCENT AND BY 4.7 PERCENT IN THE LAST QUARTER.


3. GROWTH WAS LARGELY DRIVEN BY EXPORTS WHICH GREW AT A 15.8
PERCENT RATE WHILE IMPORTS INCREASED BY ONLY 12 PERCENT. AUTOS,
SLOVAKIA'S MAIN EXPORT ITEM, INCREASED BY A ROBUST 52.2 PERCENT
DURING THE QUARTER. GROSS CAPITAL FORMATION, WHICH MEASURES
INVESTMENT ACTIVITY, ALSO EXPANDED BY 4.4 PERCENT AFTER A YEAR
LONG DECLINE. IN ADDITION, ANALYSTS EXPECT FURTHER GAINS IN
INVESTMENT DUE TO TECHNOLOGY IMPORTS RELATED TO FDI.


4. HIGHER REAL WAGES IN COMBINATION WITH LOWER INTEREST RATES
STIMULATED HOUSEHOLD CONSUMPTION TO RISE BY 3 PERCENT AFTER
DECLINING THROUGHOUT 2003. (NOTE: IN ORDER TO ENCOURAGE DOMESTIC
DEMAND, THE CENTRAL BANK CUT INTEREST RATES BY A TOTAL OF 325
BASIS POINTS SINCE 2002, TO REACH THE CURRENT RATE OF 5 PERCENT).
THE AVERAGE NOMINAL MONTHLY WAGE INCREASED 11.2 PERCENT DURING
THE LAST YEAR TO REACH USD 441, THE HIGHEST INCREASE IN SEVEN
YEARS. REAL WAGES ROSE BY 2.7 PERCENT IN THE QUARTER AND THIS IS
THE FIRST INCREASE SINCE 2002. GOVERNMENT SPENDING ACTUALLY
DECREASED BY 2.3 PERCENT FOLLOWING A DRAMATIC 10.4 PERCENT RISE
IN THE LAST QUARTER OF 2003.

WEISER

NNNN