UPDATE 1-Slovak GDP slows in Q1, no inflation risks seen

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By Martin Dokoupil

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.

"We expect that the economy could still reach a double digit growth," said Pavol Balaz, head of the national accounts department at the Statistics Bureau.

"There is still potential in the economy as new factories are not running yet at full speed."

Analysts said net exports were a key contributor to growth, mainly from large projects such as car factories built by France's PSA Peugeot Citroen and South Korea's Kia Motors .

The statistics office said it sees full 2007 GDP growth at 8.8 percent, above a record 8.3 percent rise last year. It expects December 2007 headline CPI at 2.6 percent year-on-year.

STABLE INTEREST RATES

Analysts said the central bank was not expected to adjust policy in coming months, after two recent cuts, due to an acceleration in household spending and because rates needed to converge towards euro zone levels ahead of entry in 2009.

The NBS left the repo rate at 4.25 percent at a policy meeting this week after two 25 basis point cuts in April and March. Markets expect the ECB to raise its benchmark rate by a quarter point to 4.0 percent next week and to 4.25 percent in September.

"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.

(Additional reporting by Martin Santa)

Keywords: SLOVAKIA ECONOMY/GDP