Slovak GDP slows in Q1, signals no inflation risks

...

BRATISLAVA, June 1 (Reuters) - Slovak economic growth slowed slightly in the first quarter and analysts said one of the EU's hottest economies showed no signs of inflationary pressures despite accelerating household demand. The Statistics Bureau released data on Friday showing the economy raced ahead at 9.0 percent, year-on-year, slightly above the 8.9 percent flash estimate it gave last month, though down from the 9.6 percent increase recorded in the fourth quarter.

"It is healthy, balanced growth and a confirmation (of the healthy structure) seen in the last quarter (of 2006)," said Lucia Steklacova, senior analyst at ING Bank in Bratislava.

"Household consumption is slightly higher than expected but since wage growth (in the first quarter) is lower than expected, we see no inflation threats in the first half of the year."

The central bank (NBS) said after the flash estimate was released in May that rapid economic growth was not fuelling inflationary pressures in the central European country that aims to adopt the euro currency in 2009.

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

Household consumption growth quickened to 6.5 percent in the first quarter, from 6.1 percent in the previous three months, Friday's data showed.

Analysts said net exports were a key contributor to growth, which was slowed largely by a decrease in inventories, probably due to investments, which increased in the past year, mainly thanks to large project such as car factories of French PSA Peugeot Citroen and South Korean Kia Motors.

"The structure indicates that strong growth of domestic demand continues. Inflation developments are also slightly higher than the central bank had expected, so there is no reason for it to lower interest rates," said Juraj Valachy, analyst at Tatra Banka.

"Another factor is that the bank needs to near interest rates of the ECB, which are catching up. But even without euro zone entry, these figures do not provide a reason to significantly lower interest rates," he said.

The Slovak crown did not react to the figures, trading at 33.930 per euro as of 0740 GMT. The unit closed at 33.940 on Thursday.

The key repo rate stands at 4.25 percent after the central bank left it unchanged at a policy meeting this week.

(Additional reporting by Martin Santa)

Keywords: SLOVAKIA ECONOMY/GDP