Slovak June trade gap disappoints, could hit GDP

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Slovakia's foreign trade deficit widened unexpectedly in June to its widest gap this year, with analysts saying the external balance could hit economic growth in the second quarter.

The trade deficit rose to 4.513 billion crowns ($186.3 million) in June from a revised gap of 4.277 in May, the Statistics Office said on Friday. The market had expected a 0.7 billion shortfall in June.

"The foreign trade balance is a disappointment. We expected a double-digit rise in exports," said Lucia Steklacova, senior economist at ING Bank in Bratislava.

Export growth slowed to 6.7 percent in June, its slowest pace since May 2005, from May's 16.8 percent. Import growth decelerated to 6.2 percent in June, from 12.6 percent the month before.

Analysts said the exact cause of the deeper trade deficit was not clear yet as a detailed breakdown of the figures will not be released until next month. Some said higher oil imports could be the reason.

They were puzzled over slowing exports as industrial output rose by an annual 12 percent in June, driven by the car industry.

The crown fell to a two-week low of 33.580 per euro after the release, from 33.550 before the data. It was at 33.515 at 0840 GMT, down from Thursday's close of 33.495.

Despite the disappointing June data, Slovakia's external balance is expected to improve on an annual basis in 2007 as new car assembly plants of PSA Peugeot Citroen and Kia Motors boost their export-oriented production.

Analysts said June figures indicated that Slovakia's economic expansion in the second quarter might be softer than previously expected, but it was still likely to top 9.0 percent growth reported in the first three months.

"Foreign trade data showed rather weak exports growth dynamics in June," said Maria Valachyova, senior analyst at Slovenska Sporitelna.

"Contribution of net exports to GDP growth could be smaller than previously thought. But it does not change the overall picture and economy will continue to grow at strong pace."

A flash estimate of the second quarter gross domestic product (GDP) data is due on Tuesday.

INFLATION IN LINE

Separate data showed Slovak consumer prices were flat on the month in July, putting the annual inflation rate at 2.3 percent. The figure beat market forecast of 2.4 percent.

"The figures are in line with analyst and central bank expectations, and there is no risk of near-term worsening, so meeting the Maastricht criteria is still very likely," said Juraj Valachy, analyst at Tatra Banka in Bratislava.

"There will be no impact on interest rates as the ECB (European Central Bank) rate outlook is more important now."

The central bank follows EU-norm inflation due to Slovakia's goal to adopt the euro in 2009. Its key two-week repo rate is at 4.25 percent, a 25 basis point premium over the ECB benchmark.

(Additional reporting by Peter Laca)

Keywords: SLOVAKIA ECONOMY/

[BRATISLAVA/Reuters/Finance.cz]