Slovakia’s industrial recovery fizzles out in February

Slovakia’s industrial recovery fizzles out in February
By bne IntelliNews April 11, 2017

Slovak industry saw its recent recovery fizzle out in February, as output slowed to 2.6% y/y, the statistics office reported on April 11.

The reading suggests a worrying return to sluggishness early in the year. Growth of 7.6% in January had signalled a welcome acceleration in activity as the year kicked off, following an erratic second half to 2016. A 3% gain in December represented something of a stabilisation following a deep drop in the summer, as holidays at German factories saw production sag in Slovakia.

However, growth in the final quarter of 2016 remained subdued, capping output at 3.3% for the full year. The data illustrated just how difficult a year it was for Slovak industry, with export demand out of the Eurozone – the dominant driver of the economy – patchy, and a deep lull in investment crippling domestic demand. The industrial sector expanded 6.9% in 2015.

Indicators across the Visegrad region have hinted at a much stronger start to 2017, as activity and confidence in the Eurozone has risen strongly. In that context, the February data – although not adjusted for a shorter month this year – is clearly disappointing. In seasonally adjusted terms, output dropped 0.9% m/m.

The downturn in activity looks to be the result of slowing growth in the vital manufacturing sector. By far the biggest contributor to the Slovak economy, the sector managed expansion of just 2.2% y/y in February, a full 4.1pp slower than in the previous month.

The sluggish performance of Slovak industry last year served to illustrate the country’s huge reliance on the automotive sector, as erratic performance in auto exports saw overall output swing. Slovakia is the world’s largest per capita car producer.

The poor result in February - alongside the continued struggles of the construction sector – also hints that Slovakia continues to struggle to get investment back on track. Driven by a sharp drop in EU fund absorption, investment as a percentage of GDP fell 2.9pp to 20.6% in 2016, with the construction sector – heavily dependent on the public projects that rely on EU money – bearing the brunt.

The country’s builders saw output drop a further 10.7% y/y in February. That said, the fall was around 7pp smaller than that recorded in the first month of the year. Seasonally adjusted monthly figures reported 2.7% growth.