US embassy cable - 04BRATISLAVA607

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 
 
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