Slovakia's economy, having enjoyed relatively robust growth over the past 12 months, continues to give signs that it may well struggle to keep up the pace in 2013. The latest signal came on January 11 as the Statistical Office reported industrial production growth slowed for the fourth consecutive month in November.
Through the 11th month of the year, Slovak industrial output grew at a working-day adjusted 5.2% year on year, significantly underperforming the consensus expectation of 7.8%. The result also illustrates a stark slowdown from the 8.1% growth posted in October. Most worryingly for Bratislava, the figure is more than 13% below the 18.6% peak in July, and as Erste analysts note, industrial production was still growing at 13% in September.
Given that it was the country's car producers that drove Slovakia to the highest GDP growth in the Eurozone in 2012 - anticipated at 2.6% - it's little surprise that it was a slowdown in auto production that did most to hit the headline figure. Output in the sector in Slovakia may well have put the rest of Europe to shame by expanding 23.3% year on year in November, but that was the slowest growth it has seen in 11 months. During the summer peak, the country's car plants saw production more than 80% higher.
"In spite of the slowdown, automotive remains the main driver of growth being responsible for almost the whole annual rise in [industrial production]," Erste worries. "Automotive production grew 23% y/y in November, as the opening of new production lines last spring is still having an impact. Yet, automotive production is weakening as compared to spring and summer. For comparison, the annual rise in production of the automotive sector was around 80% in summer. After seasonal adjustments, automotive output has dropped for the third consecutive month - in November by 17% m/m. Utilities as well as mining also recorded drops in November."
Whilst the Slovak operations of Volkswagen and Kia spent most of 2012 breaking production records and talking bullishly about plans to run at full capacity through 2013, the slowdown matched a fall in general sentiment across the industrial segment. Erste points out that sentiment "slumped to the lowest levels since summer 2009 in November (albeit the December reading suggests a partial correction)."
Taking that as their cue, analysts suspect that industrial production growth in the final month of the year could pep up. Meanwhile, Kia Slovakia said this week that it expects 2013 output to fall to 290,000 vehicles, just 2,000 short of the record production its newly expanded plant recorded this year.
The Association of Slovak Car Industry (ZAP) said on January 11 that Slovakia produced a record 900,000 cars in 2012, reports Reuters - a 40% rise on 2011 - and forecast output should be close to the same level this year. However, that still suggests Slovakia is set to struggle to replicate last year's impressive GDP growth, unless demand out of the Eurozone perks up.
That will worry a government that has pinned its budgetary hopes on maintaining growth and remains almost entirely dependent on the country's foreign carmakers to achieve it. Most analysts expect 2013 growth to come in around 1.5%.
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