* Q1 GDP fall deeper than flash estimate
* First ever full-year contraction forecast
* Budget takes hit from slowing economy
(Adds budget implications in paragraphs 3, 13-17)
By Peter Laca
BRATISLAVA, June 3 (Reuters) - The Slovak economy shrank by
5.6 percent in the first quarter, the Statistics Office said on
Wednesday, forecasting a first ever full-year contraction in
2009 as domestic demand begins to crumble.
The year-on-year fall in gross domestic product, which was
worse than the flash estimate of a 5.4 percent decline, was the
first contraction in nine years and compared with annual growth
of 2.5 percent in the fourth quarter of 2008.
The economic downturn, which is also causing higher
unemployment, has been curbing budget revenues and complicating
efforts by Prime Minister Robert Fico to expand welfare
programmes one year before a general election.
"The key was the fall in external demand, and this will
continue," said Juraj Valachy, an analyst at Tatra Banka in
Bratislava. "We've also started to see significant secondary
effects on the Slovak economy, as household consumption
declines, as well as investments and others."
Slovakia, a euro zone member since January, has been hit by
the global economic downturn which has curbed demand for its
exports, mainly cars and electronic goods, in the West.
Data released on Wednesday showed household consumption
falling by 1.2 percent on the year, after a 4.7 percent rise in
the fourth quarter of 2008 and compared with strong 8.4 percent
growth in the first three months of last year.
Slovakia is now heading for its first full-year economic
contraction ever. The Statistics Office said it forecast
full-year GDP to shrink by 3.5 percent, more than the central
bank's prediction of a 2.4 percent contraction.
Analysts predicted even a deeper fall.
"Despite optimism in the world, Slovak companies still
report falling foreign demand, and we also see a rise in
unemployment," said Eduard Hagara, an ING Bank analyst in
Bratislava.
"Household consumption could show a more significant decline
in the future... This year will be very bad, we see a 5.3
percent GDP fall on the year, and then 1.5 percent growth in
2010," he said.
The Slovak economy has been slowing sharply from one of the
highest growth rates in the European Union in the past few
years. GDP growth was a record high of 10.4 percent in 2007 and
stood at 6.4 percent last year.
In addition to slowing demand, Slovakia was hurt by an
interruption of gas supplies in January, which forced major
industrial companies to curb or completely shut production.
BUDGET HIT
Slovakia's economy fared worse than its central European
neighbours, Poland and Czech Republic, whose flash GDP estimates
showed growth of 0.8 percent and a drop of 3.4 percent in the
first quarter, respectively. The Slovak GDP fall was smaller
than Hungary's flash estimate of a negative 6.4 percent.
The government originally expected Slovakia to be one of the
best performing economies in the EU this year, and its latest
forecast from February saw real GDP growth of 2.4 percent.
Cabinet officials have said the projections will be revised
downwards, and Fico said a contraction was possible this year.
The government aims to keep the public finance deficit at no
more than 3 percent of GDP to comply with the EU rules, but the
economic downturn may cause a bigger fiscal gap.
"We expect that a fall in tax revenues as well as higher
expenditures related to rising unemployment and anti-crisis
measures will lead to widening of the fiscal deficit to around
5.5 percent of GDP," said Maria Valachyova, the senior analyst
at Slovenska Sporitelna, the Slovak unit of Erste Bank.
(Additional reporting by Martin Santa, editing by Mike
Peacock/Toby Chopra)
