In Slovakia new industrial orders fall by 0.6% y/y

New industrial orders decreased by 0.6% y/y in February, still improving from the 3.2% y/y drop in January, the statistical office data released on Monday showed. In nominal terms, new industrial orders amounted to EUR4.39bn in the second month of 2018. New industrial orders declined by 1.8% y/y in January-February. Detailed data showed that new industrial orders in the automotive sector, which accounted for 53.2% of total, went up by 4.3% y/y in February, thus overcoming a temporary weakness in January and preventing a stronger fall of total new industrial orders in the month. Previously released industrial output data showed a 6.6% y/y increase in the production of transport equipment in February – given the recovering new orders in the automotive sector, we may expect its output to expand at faster rates the next month. We believe that over the longer term, the automotive sector, both its output and orders, is set to rise substantially, both because of investments of the incumbent car makers and because of the entry of Jaguar Land Rover, which is building a car plant in Nitra. And yet, the economy, especially the automotive sector, suffers from shortages of qualified labor, which limits the production capacities and is becoming a major hindrance for stronger expansion. Still, it likewise presses the manufacturers to focus more on innovations, new technologies and robotization to substitute the scarce labor, thus supporting their competitiveness in the long run. One of the ways the authorities are addressing the labor shortage problem is through simplifying the conditions for employing people from non-EU (third countries), although the regime will apply only to certain professions and districts.

Meanwhile, the other sector that mainly contributed to the slowdown of the overall industrial orders contraction in the month was that of basic metals where the new orders recovered growing by 3.7% y/y in the month (6.3% y/y drop in January). New orders for machinery and equipment also drove the total orders up as they increased by 1.8% y/y, as did those for fabricated metal products (up by 11.4% y/y). By contrast, the new orders of ICT products plunged by 40.8% y/y in February after 23.2% y/y fall the previous month, thus being among the main reasons for the overall new industrial orders fall in the month. New orders also fell in electrical equipment (down by 2.1% y/y), paper and paper products (down by 1.9% y/y) and textiles (down by 1.4% y/y), but new orders in most of the other less significant sectors reported positive annual growth rates. The above developments overall indicate that industrial output growth might somewhat slowdown in the next couple of months, but we believe that such a development would be only temporary and that the sector, especially the automotive one, will remain the main driver of the economic expansion.

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