UPDATE 1-Slovak GDP jumps to record, may bring rate hike

  (Adds quotes from statistics office, more analysts' comments) 
    By Peter Laca 
    BRATISLAVA, Dec 7 (Reuters) - The Slovak economy grew by a 
record 9.8 percent in the third quarter, data showed on 
Thursday, and analysts said the fast expansion may bring another 
interest rate hike in the coming months. 
    Confirming a flash estimate last month, the Statistics 
Office said the jump in gross domestic product growth was a 
one-off, but the new EU member's economy was likely to continue 
expanding well above the bloc's average in the coming quarters, 
buoyed by big investments such as new car factories. 
    "This jump was caused by combined effects from large 
companies that had been preparing the start of production for 
the fourth quarter," Pavol Balaz, head of the Statistics 
Office's National Accounts Department, told reporters. 
    The Office revised its full-year GDP forecast to 7.7 percent 
growth, from 6.5 percent previously, and predicted 7.2 percent 
growth in the first three months of 2007. 
    "The key drivers were investments, shown in inventories, and 
domestic demand," said Slovenska Sporitelna senior economist 
Maria Valachyova. "Inventories will transform into exports, and 
growth should remain strong in the future." 
    Economic growth will boost state revenues and help leftist 
Prime Minister Robert Fico finance his social spending plans. 
Slovakia needs to cut its fiscal deficit next year to meet its 
goal of adopting the euro in 2009. 
    Slovakia has had the highest growth rates among the four 
largest new EU members from central Europe over the past few 
years, and the third quarter figure brought it into the ranks of 
the world's fastest growing economies. 
    Growth has been spurred by rising household consumption 
after years of belt-tightening reforms, but also by investment 
by companies such as French PSA Peugeot <PEUP.PA> and South 
Korean Kia Motors <000270.KS>. 
    "The growth structure suggests the increasing potential of 
the economy, rather than its overheating," said ING Bank senior 
economist Lucia Steklacova. 
     
    TRICKY RATE CALL 
    The Slovak central bank (NBS) has raised the key two-week 
repo rate by 175 basis points this year to 4.75 percent because 
inflation risks from high energy costs and economic growth could 
endanger the euro adoption plan. 
    But a crown <EURSKK=> rise by 5.7 percent in the past three 
months has limited retail price growth and allowed the NBS to 
keep rates on hold for the second month in a row in November. 
    The crown firmed slightly after the GDP data, to 35.445 to 
the euro, matching its all-time highs, from 35.465. 
    Slovenska Sporitelna's Valachyova said the GDP data did not 
point to an immediate need to raise rates again, but risks from 
strong demand and a possible crown correction could bring 
another 25 basis point hike. 
    Other economists said the main rate has already peaked. 
    "Although consumer demand accelerated a bit in the third 
quarter of 2006, the structure of economic growth makes us 
believe that an appreciating currency will be able to squeeze 
excessive demand-side inflationary pressures from the system," 
said Miroslav Plojhar, chief economist at Citibank Czech 
Republic. 
  ((Reporting by Peter Laca; editing by Ruth Pitchford; Reuters 
Messaging: peter.laca.reuters.com@reuters.net; +421 2 5341 8402)) 
  Keywords: SLOVAKIA ECONOMY/GROWTH