Slovakia's annual economic growth slowed down to 0.6% in the first quarter of 2013 from 0.7% in the previous quarter, as the growth of exports weakened while domestic demand remained subdued, the country statistics office said, confirming its flash estimate released last month. The volume of the gross domestic product (GDP) at current prices reached EUR 16.81bn in Q1, up 1.6% from a year ago. Slovakia's output grew by a seasonally-adjusted 0.2% q/q in Q1, following a 0.1% growth in the previous quarter.

Slovakia’s economic growth was achieved on the back of foreign demand, which offset a gloomy domestic economy, the statistics office said. Exports widened by 4.2% y/y in Q1 2013, but the growth was slower than the 7.1% rise in Q4 2012 and the 5% increase in Q1 2012. Imports grew by 1.6% in Q1 2013 compared to a 4.2% growth in Q4 2012 and to a 0.2% decline in Q1 2012. Domestic demand remained a key concern, as it shrank by 3.4% y/y in Q1 following a 1.9% contraction in the previous quarter, as all expenditure indicators worsened. Gross capital formation shrank by 14.6% y/y, deepening from a 5.8% drop in Q4, and the decline in production of gross fixed capital also deepened to 8.4% from 5%. Household consumption, which has been falling since Q4 2009 despite the recovery of the economy, declined further in Q1 by 0.9% y/y following a 1.2% fall in Q4. The consumption of the public administration shrank by 0.6% in Q1 after a 0.3% contraction in Q4.

In terms of production, the Q1 GDP was driven up mainly by a 5.2% growth in the collection of net taxes on products, as well as by a 13.4% growth in the financial and insurance sector and a 4.1% growth in the information and communication sector. The sharpest annual declines were recorded in agriculture, forestry and fishing by 12.2%, construction by 11.4% and industry by 1.5%.

IntelliNews comment: The export-driven Slovak economy recorded a slight deceleration on an annual basis in Q1, but maintained growth momentum and even accelerated on a quarterly basis. Some major economic indicators, including industrial output, sales, orders and exports data, showed a surprising recovery in January, but worsened significantly in the following months, suggesting a substantial economic slowdown in the coming months. On Tuesday (June 4), Slovakia’s Finance Minister Peter Kazimir said the government would revise down its 2013 GDP growth forecast, which now stands at 1.2%. Kazimir’s announcement came after the International Monetary Fund (IMF) said the country’s economy would expand by only 0.6% this year, cutting its outlook from 1.4% expected in April.

Slovakia’s 2% economic growth last year was fuelled solely by exports, while domestic demand and household consumption shrank. Exports were driven mainly by booming car production as new capacities came on stream. But there are no new capacities planned to be installed this year and the growth in output of the auto manufacturing industry decelerated significantly in Q1, while the industry’s sales and new orders even fell in annual terms in March, indicating that the economy is losing steam. Another factor, supporting this trend is the 4.3% annual drop in exports in March, which was the biggest since October 2009, showing that external demand has declined in line with expectations. Foreign demand is anticipated to remain soft this year, given the continuing crisis in the eurozone, which is Slovakia’s main trading partner. This, coupled with the government's austerity drive, is likely to dent Slovakia’s economic growth to about or even below 1% this year, with domestic demand and household consumption seen staying subdued.