Slovak orders surge stands out in car sector, euro

BRATISLAVA, Sept 12 (Reuters) - Booming car plants drove a 38 percent jump in industrial orders in eastern euro zone member Slovakia in July, benefiting from a surge in investment and production in the country by Germany's Volkswagen.

Europe's car industry is struggling and analysts say layoffs and factory closures are in the pipeline after a summer lull if companies are to maintain profitability.

But Slovakia - with a population of just five million - has seen a stream of new car plant investments in the past decade, drawn by its drive to join the euro and far lower labour costs than its western neighbours.

Analysts said the country had benefited from demand for Volkswagen's Up! small car which it produces at its Bratislava plant along with Skoda Citigo and Seat Mii derivatives.

VW - who has succeeded in keeping most of its European plants running close to 100 percent capacity while others struggle - expects its output in Slovakia to almost double this year to around 400,000 vehicles.

"Thanks to past successes, Slovak assembly plants have persuaded parent companies to make further investments and now Slovakia has one of Europe's most modern car sectors, which has also helped it to win important projects," said Marek Gabris, senior analyst at CSOB bank in Bratislava.

"Slovakia is lucky that Volkswagen is the world's leader (and) in the meantime Asian car makers seem to be boosting their market share and we benefit from this."

Production at South Korean Kia Motors' Slovak plant jumped by 10 percent on the year in the first half of 2012 to 149,000 cars, a record for six months of production.

Managers said in July they were confident they will hit end-year production targets of 285,000 vehicles thanks to new models produced for customers across Europe.

Analysts said that July's 83 percent rise in car production had benefited from a shifting of summer holidays but the expansion was expected to continue. That is allowing the euro zone's second poorest economy to grow solidly - by around 0.7 percent in the first half of the year - at a time when much of the currency bloc is slipping into recession.

New industrial orders surged by 37.9 percent on the year in July, the fastest jump since May 2010, and by 5.4 percent on the monthly - seasonally adjusted - basis.

While the tiny economy only makes up less than 2.0 percent of the euro zone as a whole, its success in keeping growing over most of the past two years, offers some an example of how Greece and others will have to compete in years to come shall they implement needed market-reforms.

Belt-tightening and wide-reaching market reforms over the past decade, combined with a cheap, skilled workforce have helped transform the ex-communist country. (Reporting by Martin Santa; editing by Patrick Graham)