* Q1 GDP fall deeper than flash estimate
* First ever full-year contraction forecast
* Budget takes hit from slowing economy
* Finance Minister sees deeper fall than Statistics Office
(Adds Finance Minister comments in paragraphs )
By Peter Laca
BRATISLAVA, June 3 (Reuters) - Slovakia's economy shrank
more than expected in the first quarter as exports and domestic
demand crumbled, data showed on Wednesday, and the government
said full-year fall was likely to be more than 3.5 percent.
The Statistics Office said real gross domestic product fell
by an annual 5.6 percent in January-March, worse than the flash
estimate of a 5.4 percent decline. It was the first contraction
in nine years and compared with annual growth of 2.5 percent in
the fourth quarter of 2008.
The office also forecast GDP to fall by 3.5 percent in all
of 2009 in Slovakia's first full-year contraction ever, but
Finance Minister Jan Pociatek said he saw an even deeper slump.
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.
"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.
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.
Pociatek said the finance ministry was now working on a
revision of its forecasts, which would be followed by
adjustments to this year's budget projections.
"All I can say at this moment is that I think the updated
prognosis will be worse than the Statistics Office's forecast,"
Pociatek told journalists after a government meeting.
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)
