UPDATE 2-Slovak GDP shows record growth in Q3, crown rises

 (updates with central banker quotes) 
    By Peter Laca 
    BRATISLAVA, Nov 15 (Reuters) - Slovakia's economy expanded 
by a record 9.8 percent in the third quarter, putting the 
country among the ranks of the world's fastest growing nations 
and boosting the crown to record levels against the euro. 
    The preliminary flash estimate of third quarter GDP, 
released by the Statistics Office on Wednesday, was well above 
the market forecast of a 6.6 percent year-on-year rise. 
    Slovakia has been showing one of the highest growth rates in 
the European Union since it joined the bloc in 2004, thanks to 
accelerating household consumption and rising investments in the 
key automotive industry. 
    As with other neighbouring central European economies, it 
has also benefitted from an upturn in the economies of western 
Europe, especially Germany. 
    "The third quarter data clearly confirmed Slovakia's leading 
position in the central European region, with economic growth 
comparable with fast expanding economies of China and the Baltic 
states," said Martin Lenko, an analyst at VUB Bank, a unit of 
Italy's Banca Intesa. 
    The Statistics Office said in a statement that the latest  
GDP growth figures, up from 6.7 percent in the second quarter, 
were influenced by continued foreign demand and growth in 
inventories of materials and finished products. 
    It did not release any breakdown of the third-quarter GDP 
structure, but the strong headline number pushed the crown to an 
all-time high of 35.720 per euro. 
    The record crown rate was 7.7 percent above parity in the 
exchange rate mechanism 2 (ERM 2), the precursor to the euro 
which Slovakia joined last year as part of its plan to adopt the 
European single currency in 2009. 
     
    MARKET AT ODDS 
    Central bank Governor Ivan Sramko said that while the data 
were well above expectations, the economy was healthy and could 
continue its fast pace growth into 2007, though more detailed 
data was needed to analyse the structure and any policy impact. 
    "From the few details that are available, we consider the 
growth to be healthy because the dominant part ... in 
consumption was foreign demand and not the demand that we see as 
a risk for inflation," he said after attending a government 
meeting. 
    "But if we understood the main source of growth correctly, 
then the economy is likely to maintain similar growth at least 
in the first half of next year," he added. 
    The lack of details also put market watchers at odds over 
the implications of the strong economic growth. 
    ING Bank senior economist Lucia Steklacova said healthy 
growth structure would give room for more crown firming, which 
would reduce the need to tighten monetary policy. 
    "This figure means that growth is healthy, and surprisingly 
high imports in the previous months will translate into exports 
in the future, and not into consumption, as some may have 
feared," she said. 
    But others, including Danske Bank analysts, said the strong 
GDP readings meant the economy was overheating and that the 
central bank will have to raise rates further to tame upward 
pressure on shop prices. 
    The central bank has raised interest rates by 175 basis 
points in four steps this year, bringing the key two-week repo 
rate to 4.75 percent, to fend off inflation risks stemming from 
high energy prices and rising domestic demand. 
    The central bank will be in a difficult position when 
assessing its interest rates at the end of November as it will 
have to weigh the strong headline GDP figure against signs of 
improving structure, economists said. 
    "Economic growth has jumped through the roof, but the 
structure is changing in favour of non-inflationary growth as it 
will be driven by foreign demand," said Miroslav Plojhar, the 
chief economist at Citibank Czech Republic. 
 (Additional reporting by Martin Santa) 
 ((Reporting by Peter Laca, editing by Stephen Nisbet; Reuters 
Messaging: peter.laca.reuters.com@reuters.net; +40 21 315 
8320;)) 
  Keywords: ECONOMY SLOVAKIA GROWTH