UPDATE 2-Slovak GDP growth accelerates in Q2, seen healthy

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By Peter Laca

Slovak economic growth accelerated in the second quarter to confirm the country as the fastest expanding in central Europe, and analysts said the growth was healthy and not inflationary.

The Slovak Statistics Office said on Tuesday real gross domestic product growth was 9.2 percent in the second quarter of 2007 compared with 9.0 percent in the first three months.

The figure was slightly below market forecasts of 9.4 percent in a Reuters poll, but analysts saw no negative market impact from the number.

"Gross domestic product growth was influenced mainly by continued foreign demand, along side persistent growth in domestic demand," the Statistics Office said in a brief comment.

It did not release any detailed data in its flash GDP estimate. It is due to publish detailed second quarter figures on September 4.

Analysts said worse-than-expected foreign trade data in the past few months appeared to have had a negative impact on second quarter GDP growth, which was partly offset by rising inventories.

Slovakia has had one of the fastest growth rates in the European Union since joining the bloc in 2004 as steady foreign investment inflows boosted exports and household spending picked up speed after years of belt-tightening reforms.

Despite the strong growth, the Slovak inflation rate has fallen this year, hitting record lows of 1.5 percent in May and June, thanks to a firming crown, lower oil prices and government pressure on utilities to keep energy prices down.

Market watchers said strong economic growth driven both by domestic and foreign demand should not trigger any monetary policy reaction

"We think the consumption is likely to have shifted more in favour of domestic demand, compared with the first quarter, but we still consider it healthy and not pointing to imminent inflationary risks," said Lucia Steklacova, a senior analyst at ING Bank in Bratislava.

The growing economy has been boosting state budget revenues and helping leftist Prime Minister Robert Fico finance part of the welfare agenda that helped him win a 2006 election.

Fico is trying to secure funds for social spending, such as bonuses for pensioners, but must also cut the fiscal deficit below 3.0 percent of GDP this year to meet the government goal of adopting the euro in 2009.

The Slovak crown was slightly weaker on Tuesday morning, trading at 33.480 to the euro at 0800 GMT, from 33.455 earlier in the session, but traders said the move was related to bearish sentiment on global emerging markets.

"Although economic growth remains the fastest in the region and could be supportive for the crown, global market sentiment prevails over anything else these days," CSOB Bank analysts said in a market note. (Additional reporting by Martin Santa)

[BRATISLAVA/Reuters/Finance.cz]