Finance news

Slovakia's economic growth remained the fastest among the 21 European countries that have released first quarter data, driven by consumer spending, which threatens to push up inflation.

The annual growth rate was 8.7 percent, matching a preliminary result released on May 15, the Slovak Statistical Office in the capital of Bratislava said today. The rate compares to 14.3 percent in the fourth quarter, when a stockpiling of cigarettes added 4.4 percentage points to the rate, according to the statistics office.

Slovakia is benefiting from increased output from newly built factories by carmakers such as Kia Motors Corp., electronics makers including Sony Corp. and their suppliers. The new jobs and higher wages spurred household spending, which raises concern that inflation may accelerate.

“Domestic demand, fueled by rising wages, is taking over from exports as the main driver of growth,'' said Maria Valachyova, an economist at Slovenska Sporitelna AS. “This has boosted inflation risks.''

Consumption Soars

Household consumption rose an annual rate 8.4 percent in the first quarter, the highest in seven years, compared with a 6.9 percent increase in the previous quarter. Real wages gained 6.2 percent, the most in 10 quarters, and 2.8 percent more people had jobs, the office said.

Slovakia, set to adopt the euro from next year, convinced the European Union that inflation will remain low to meet terms for the currency switch cash till payday.

The inflation rate rose to a 18-month high of 4.3 percent in April, driven by global increase in food and fuel prices, leading policy makers to delay a cut in its 4.25 percent benchmark interest rate needed to align borrowing costs with the euro region's 4 percent.

With the currency switch slated for January, today's release won't prompt a monetary policy reaction, according to Valachyova at Slovenska Sporitelna.

The koruna was trading unchanged at 30.353 against the euro at 9:44 a.m. in Bratislava. It has gained almost 11 percent this year on optimism the koruna will be switched to the euro at a strong rate as the government wants to use the currency strength to tame inflation.

Exports increased 12.2 percent from the first quarter of 2007, while imports were up 12.9 percent. Investment increased 2.4 percent and government spending was up 0.6 percent in year.

Full-year growth will probably reach 7.9 percent, compared with 10.4 percent last year, the statistical office estimated. It put year-end inflation at 4.1 percent.

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