The merchandise trade balance turned to EUR129m deficit in December from the upwards revised EUR83m surplus in November and was nearly triple the reported a year ago trade gap, the stats office data published on Friday showed. The December print thus came into a major negative surprise to markets that expected a surplus of some EUR385m in the month. The annual pace of increase of exports accelerated, but insufficiently to outstrip that of imports that slowed down in December. We see solid reasons to expect exports growth acceleration in the next months and a preservation of the strong growth of imports going forward. Exports would be boosted by new automotive capacities that were opened in October by Jaguar Land Rover in its EUR1.4bn car plant in Nitra. Yet, they will remain constrained by potentially gradually slowing down economic activity in the country’s main trading partners, if the most recent IMF’s and EC’s forecasts materialize. Existing labor shortages in some industrial sectors such as car manufacturing might limit production growth, hence exports as well. Imports are likely to be supported by both strong consumer and investment demand (the latter related to intensifying EU funds drawing mainly, but also stronger public investments, incl. in the Bratislava bypass), as well as likely to continue growing global oil prices.
Thus, the foreign trade surplus narrowed by 19.6% y/y to EUR2.45bn in 2018 with exports rising by 6.9% y/y and imports — by 8.0% y/y. Foreign trade in machinery and transport equipment, accounting for 60.5% of exports and 48.7% of imports, continued driving both the exports and imports expansion in both December and 2018. Given the fact that exports grew by 5.9% y/y on average in October-December, slowing down from 8.1% y/y average growth in July-September, while imports growth was stronger, we may expect net exports to have had a negative contribution to GDP growth in Q4. The stats office is to release flash GDP data on Feb 14 and detailed GDP data on Mar 7.
As mentioned above, we expect the solid expansion of imports to continue in the next months on the back of the robust domestic demand, both stronger household consumption (thanks to the continued improvements on the labor market) and investments driven mainly by the public sector as those in automotive capacities have been already completed. It is likely that imports growth will be quite strong in the following months with the intensifying works on the Bratislava bypass construction. The resumed increase of global oil prices in January are to have an upside influence as well. Over the medium term, we think that Slovakia’s exports are likely to perform very well on the back of increased production capacities in the automotive industry. However, potential car market saturation might significantly hurt car exports and production, hence the economy, in our view. Other factors that may hinder stronger exports expansion include a potential slowdown in the economic activity in Europe, as projected by the IMF and the EC, rising labor shortages that prevent faster industrial expansion, as well as protectionist measures in foreign trade, in our view.