UPDATE 1-Slovak Q2 GDP revised up to near record growth

...

By Martin Dokoupil

BRATISLAVA, Sept 4 (Reuters) - The Slovak economy roared ahead at a near record pace in the second quarter, in line with market expectations, but analysts said the expansion was unlikely to prompt a near-term tightening of central bank policy.

The Statistics Office said on Tuesday that gross domestic product (GDP) rose by a real 9.4 percent year-on-year in April-June, up from the flash estimate of a 9.2 percent rise made by the Office in August.

Growth, one of the fastest rates in the European Union, was just under the record 9.6 percent Slovakia posted in final three months of 2006. GDP rose a real 9.0 percent in the first quarter of 2007.

"Final household consumption and net exports were the key drivers of growth," said Maria Valachyova, senior analyst at Slovenska Sporitelna in Bratislava.

"Household consumption was slightly higher than expected. This was a slight surprise," she said.

Domestic demand, which is rising after years of belt-tightening reforms, was up 7.3 percent on the year, compared with 6.5 percent growth in the previous three months.

The Office said GDP growth was not creating inflationary pressures, adding the economy will slow in the third quarter as unfavourable weather hit crop yields.

The base will also rise due to last year's launch of PSA Peugeot Citroen's car plant.

The Office maintained its full year GDP forecast at 8.8 percent, above the record 8.3 percent growth seen in 2006, and lowered its end-2007 inflation forecast to 2.3 percent from a previous estimate of 2.6 percent.

The booming car sector, long dominated by Volkswagen's assembly plant near Bratislava, is a key driver of Slovakia's economic growth. GDP was also lifted by the launch of a Kia Motors factory in December 2006.

Analysts said investment growth remained strong although it decelerated to 6.3 percent in April-June, from 7.7 percent in the first quarter. Growth in exports continued to outpace that in imports with both weakening slightly in the second quarter.

"Household consumption is very strong. This would halt any discussions about an interest rate reduction even if we were not going into the euro zone," said Juraj Valachy, analyst at Tatra Banka.

"Overall growth is very balanced and did not show any reason for changes in interest rate settings. We will wait for the ECB (European Central Bank), and if the ECB goes above 4.25 percent the central bank will go up (tighten policy) as well, he said."

The NBS, which aims to bring Slovakia into the euro zone in 2009, kept the key two-week repo rate unchanged at 4.25 percent, 25 basis points over the ECB benchmark, last week.

(Additional reporting by Martin Santa)

Keywords: SLOVAKIA GROWTH/