Industrial production growth accelerates to 6.2%% y/y in Slovakia

Industrial production (wda) growth accelerated to 6.2% y/y in November from 5.4% y/y in October, according to data of the statistical office published on Thursday. The print came into positive surprise to markets, the consensus estimates of which pointed to 4.5% y/y increase. All subsectors safe for mining and quarrying that contracted contributed to the industrial production expansion in the month. In monthly terms, industrial output increased by 0.9% m/m (sa), thus continuing to show significant volatility but also gain of growth momentum.

As usual, the industrial output development in November mainly reflected that of the manufacturing, the output of which expanded by 6.2% y/y (wda) in the month, speeding up from 5.5% y/y expansion reported in October. The performance of the automotive sector, the most important one for the country’s industry and exports, improved markedly in November as its output expanded by the robust 12.2% y/y in the month, up from 1.7% y/y expansion reported in October. Still, the lack of qualified labor, the fact that local car makers might be close to the top of their production capacities overall create constraints to the sector. Going forward, the outages of the car makers in December and January are to weigh on the sector’s performance in the next couple of months. The observed of late rather disappointing and more moderate expansion of car sales in Europe may be indicative of saturation of the market, which may also put limits to local car production unless new markets are found. Otherwise, the strong increases of the output of electrical equipment and of the chemical industry supported the headline industrial production expansion in the month. By contrast, the decreasing output of the pharmaceuticals and the ICT industry prevented stronger overall industrial expansion in November. The utilities output expanded by 8.9% y/y in November with the growth speeding up from 6.3% y/y in October, and also contributed to the stronger pace of expansion of the total industrial output growth in the month. The mining sector remained on negative territory for the eighth straight month contracting by 7.1% y/y in November.

Overall, in the medium term we may expect the automotive sector to continue supporting the country’s industrial production and exports, and hence economic expansion, as Jaguar Land Rover is to launch its EUR1.4bn car plant late this year. However, the pace of the automotive sector expansion may be constrained by the seemingly gradually saturating car market in Europe, local car makers reaching their full capacities and qualified labor shortages unlikely to be overcome any time soon. Still, production capacities constraint might not be a major problem as VW Slovakia is to gradually increase output as it plans to create some 2,000 new jobs in its local plants to take benefit of cheaper and skilled labor force. The production of Opel cars may also potentially shift to Slovakia after French PSA Group that runs the PSA Peugeot Citroen Slovakia in Trnava agreed with General Motors to buy the Opel brand. Moreover, PSA announced investment of EUR 165mn by 2021 that would increase its capacity to 360,000 vehicles. Slovakia is also competing with Romania and Hungary for EUR200m investment of Japanese car producer Mitsubishi Motors in a new engine or turbine plant in CEE. Overall, we expect industrial production expansion to continue in the next months on the back of increasing new orders in Germany, as well as the overall upbeat sentiments among industrialists. At the same time, potentially lower external demand may weigh on the industry’s development, which could be additionally limited by the increasing qualified labor shortages amid shrinking labor market, in our view.

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