Strong recovery from a severe downturn in Slovakia

The Slovakian economy has rebounded from last years severe economic downturn, with GDP growing 4.6% year-on-year in the first quarter of 2010. According to the Statistical Office of the Slovak Republic, overall industrial production increased 13.1% compared to Q1 of 2009, when it declined 22%. After steep decline during the last year, production in the automotive industry has increased 49.8% year-on-year, the manufacture of machinery and equipment 49.9%, and chemicals 35.9%. Exports of goods rose 16.9% in the first three months of 2010, after their decrease of 19.9% in 2009 [imports declined by 23.6% in the same period].The economic sentiment indicator has increased 24.2 points since its all-time low of mid-2009, but is still 8% below its long-term average. Unemployment rose to 12.5% in April 2010 [10.9% in April 2009], dampening consumer demand.

Corporate lending conditions are still a sensitive issue, as banks remain reluctant to provide new credit: loans decreased 4.2% year-on-year in Q1 of 2010, while the interest rates for all maturities declined slightly. According to Creditreform, insolvencies increased 54.6% year-on-year in 2009. This year we expect the number of corporate failures to decrease by about 10%. The risky sectors are still construction, due to weak demand from the private sector; textiles, because of a decline in demand and low price competitiveness; paper, with increasing input prices likely to cause future problems; retail, due to decreased sales of domestic appliances; food and beverages, because of higher unemployment; and, despite some recent improvement, transport/logistics.

Highest growth in the eurozone

The IMF has revised its forecast for Slovakias growth upwards - to 4.1% in 2010 - after a decline of 4.7% in 2009: the highest growth forecast of any eurozone member this year. Thus far, Slovakia has not been affected by the recent euro crisis. However, problems may occur if monetary problems spread into the real economy of major EU members, as Slovakia is highly dependent on exports to those countries.