(Releads to add Prime Minister's comments on fiscal deficit)
By Peter Laca
BRATISLAVA, March 4 (Reuters) - Slovakia's economy grew at a
record pace in 2007 thanks to rising exports, helping the
government to reduce the budget deficit as the nation moves
closer to planned euro adoption next year.
Gross domestic product (GDP) rose 14.3 percent year-on-year
in the fourth quarter of 2007, the highest rate in a quarter
ever, the Slovak Statistics Office said on Tuesday.
Full-year 2007 GDP growth was 10.4 percent, a record annual
expansion, confirming Slovakia's rapid convergence with more
developed European Union countries before the planned euro zone
entry.
The booming economy has helped to reduce the fiscal deficit
to below last year's target of 2.9 percent of GDP. Prime
Minister Robert Fico said on Tuesday the gap was around 2.1
percent, well below the euro adoption threshold of 3 percent.
Both GDP figures were slightly above flash estimates
released by the Statistics Office in February, which had shown
14.1 and 10.3 percent growth rates for the fourth quarter and
the full year respectively.
"The structure of growth appears to be balanced," said
Eduard Hagara, an analyst with ING Bank in Bratislava. "Exports
were better than what we had expected, at the expense of
consumption. The structure of growth is healthy."
The Statistics Office said the latest GDP data were
influenced by the impact of pre-stocking of cigarettes as
distributors boosted reserves before an excise tax rise
effective from the start of this year.
It did not elaborate on the cigarette impact in the latest
GDP data, though it had said in the February flash estimate
release that the effect on the fourth quarter figure was 4.4
percentage points.
The Slovak economy has enjoyed one of the highest growth
rates in the EU since joining the bloc in 2004. The main driver
is large foreign investment projects, such as car assembly
plants and electronics makers, which have boosted exports.
Growth has also been helped by reviving domestic demand as
household consumption rises after years of belt-tightening
reforms.
NON-INFLATIONARY GROWTH
Analysts said fast growth did not appear to be creating
additional upward pressure on consumer prices and the data was
unlikely to spark a monetary policy reaction.
"The structure of economic growth is favourable from the
inflation point of view, because final household consumption has
slowed down," said Maria Valachyova, the senior analyst at
Slovenska Sporitelna.
Fico's government has benefited from the fast economic
growth. This has boosted state budget revenues and allowed it to
pursue welfare policies while still cutting the budget deficit
for euro zone entry.
"With a high probability, the deficit figure (for 2007) was
around 2.1 percent," Fico said at a conference on euro adoption.
Previous government estimates had put the shortfall at around
2.4-2.5 percent of GDP.
Although growth has been anti-inflationary, analysts say
Slovakia will need to tighten fiscal policy further to avoid
inflation pressures following the euro entry.
(Reporting by Peter Laca, editing by David Stamp)
