Slovak economy slows in Q1, disappoints markets

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Slovak economic growth slowed to an annual 8.9 percent in the first quarter of 2007 and fell short of market expectations of a double digit rise, preliminary data showed on Tuesday, pushing the crown currency down.

The flash GDP estimate of the Slovak Statistics Office was a disappointment for investors as analysts predicted record growth of 10.5 percent year-on-year in the first quarter, after 9.6 percent growth in the last three months of 2006.

The Statistics Office did not release detailed data in its flash GDP estimate. It will publish a breakdown of the first quarter data on June 1.

"On the consumption side, gross domestic product growth was influenced mainly by continued foreign demand, alongside persisting growth in domestic demand," the office said in a brief comment on the flash estimate.

The Slovak economy has been showing one of the highest growth rates in the European Union in the past two years.

GDP growth has been helped by rising exports and solid domestic demand as households consumption rises after years of belt-tightening reforms.

Investments have also increased in the past year, mainly thanks to large project such as car factories of French PSA Peugeot and South Korean Kia Motors .

Analysts had predicted rising car production to have pushed economic growth to record levels in the first quarter.

"There is no breakdown available, but we suspect the main culprit is likely to be car manufacturing sector, which is the main driving factor," said Piotr Matys, a 4Cast London analyst.

The crown weakened after GDP data, easing to 33.600 per euro as of 0745 GMT, from 33.555 earlier in the session.

But economists said the currency would find solid support soon as economic growth remained one of the fastest in the EU, and had potential to accelerate further later in the year.

"The initial market reaction was negative, but I do not expect a significant crown weakening as the market will acknowledge that the growth number is still high," said Silvia Cechovicova, an analyst at CSOB Bank Bratislava.

"It is possible that acceleration of growth was only delayed, and that we will see faster growth in the second quarter," she said.

(Additional reporting by Martin Santa)

Keywords: SLOVAKIA ECONOMY/GDP

[BRATISLAVA/Reuters/Finance.cz]