Slovak trade gap shrinks in April, May CPI down

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BRATISLAVA, June 11 (Reuters) - Slovak inflation and trade data released on Monday showed a buoyant economy with few price pressures to prompt the central bank to touch policy in the near term.

The Slovak Statistics Office said consumer prices were flat on the month in May, putting the annual rate at 2.3 percent.

That was a touch below the market forecast of a 0.2 percent monthly rate, and a yearly rate of 2.5 percent, down from 2.7 percent in April.

The office added that core inflation, which excludes the impact of changes to state-regulated prices and excise taxes and is key to central bank policy settings, was 2.2 percent on an annual basis, just beating the market forecast of 2.3 percent.

"The inflation outlook remains positive with inflation relatively low. It will not influence the central bank's policy as it has repeatedly said that the inflation outlook looks good," said Silvia Cechovicova, analyst at CSOB in Bratislava.

"We expect the ECB to raise interest rates once more to 4.25 percent, which means that Slovak rates will remain at their current level (of 4.25 percent) for the rest of the year."

Slovakia needs to keep a tight lid on inflation if it is to meet its euro entry target of adopting the single currency in 2009 and central bank Governor Ivan Sramko said last week that fast economic growth, at 9.0 percent in the first quarter, is not fuelling inflation since it is led by exports.

FAVOURABLE EXPORTS

A separate release of data on Monday appeared to bear out his words as the April foreign trade deficit shrank beyond market expectations to 1.166 billion crowns ($45.55 million).

This was down from a revised deficit of 3.731 billion in March, and better than the market forecast of a 2.0 billion crown shortfall.

"Foreign trade data came in line with April industrial production data (released last week), exports were very good," said Juraj Valachy, analyst at Tatra Banka.

"We expect similar developments in May. This is evidence that the economy is doing well, especially on the export side," he said.

Industrial output growth accelerated to 14.9 percent in April, from 12.6 percent in March, boosted by rising output in new assembly plants of PSA Peugeot Citroen and Kia Motors .

But some analysts said more data were needed to show whether the April narrowing in the trade gap was part of a trend or a one-off improvement.

"We have to wait for the next month (May) data as there were signals that technology imports could rise in the coming months," said Lucia Steklacova, senior analyst at ING Bank in Bratislava.

"But the trend for the coming two years remains positive."

The trade balance is also expected to suffer during the summer as car plants of Volkswagen , Kia and PSA shut for holidays. The car industry accounted for 32 percent of Slovakia's exports in 2006.

Analysts forecast the external deficit to shrink to about 30 billion crowns in 2007, from 93 billion last year.

The crown did not react to the data release, moving at around 34.370 per euro as of 0815 GMT, compared with Friday's three-month low of 34.485 and a close of 34.390 .

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(Additional reporting by Martin Santa)

($1=25.60 Slovak Crown)

Keywords: SLOVAKIA ECONOMY/