January 11, 2013 / 5:15 PM / 5 years ago

Slacker car production points to sharp slowdown for Slovakia's economy

3 Min Read

* Car output roses 23.3 pct in Nov, weakest in 11 months

* Car industry assocn sees car output this year near 2012 record

* Slovakia could slip into recession if it doesn't pick up in Q1

By Martin Santa

BRATISLAVA, Jan 11 (Reuters) - Slovakia's dominant car sector expanded at the slowest pace in 11 months in November, data showed on Friday, pointing to a sharp slowdown in the previously resilient economy.

Unlike some of its bigger and richer euro zone peers Slovakia avoided a recession last year, but slowing foreign demand and the impact of government tax hikes and spending cuts are expected to choke growth further in 2013.

Car industry output rose 23.3 percent on the year in November, its worst performance since January last year. Production has been slowing from robust levels seen earlier in the year. In June it jumped 83.9 percent from a year earlier, its fastest rate since March 2007.

The slowdown in car output in November meant Slovakia's overall industrial production rose by only 5.2 percent, after rising 8.1 percent in October and was far off growth levels of 18.6 percent seen back in July.

"We had expected a slowdown, but this is even worse. This is again all about the car industry," said Boris Fojtik, analyst at Tatra Banka.

"We see materialisation of ... slowing of the real economy. We might see even worse data at the beginning of this year."

"All in all, this year does not look good."

The Association of Slovak Car Industry (ZAP) said on Friday that Slovakia produced a record 900,000 cars last year, which amounts to a 40 percent rise on 2011, and output should be close to that level this year.

Local bank Slovenska Sporitelna said the November data raised the risk that Slovakia's economy contracted quarter-on-quarter in the last three months of 2012, following a 0.6 percent increase in the third quarter. If it weakened again in the first quarter of this year as well, that would put it in recession.

"Lower industrial production points to downside risks for the Slovak economy in the fourth quarter. December data is not yet known, but we see a risk that the real GDP could, after being seasonally adjusted, drop by 1 percent," Slovenska Sporitelna wrote in an analyst note on Friday.

Slovakia's central bank sees economic growth easing to 1.6 percent this year, from an estimated 2.4 percent in 2012.

Analysts say that while strong demand for cars from emerging markets like China and Russia are underpinning Slovakia's car sector that cannot fully offset flagging demand in the crisis-hit euro zone.

The central European country's automotive industry is centered around assembly plants of Germany's Volkswagen , South Korea's Kia Motors Corp. and French PSA Peugeot Citroen.

"December industrial production could rise by around 5 percent. Further development will mainly depend on trends in orders from the euro zone countries, where there are currently risks rather to the downside," said Martin Balaz, analyst at Slovenska Sporitelna. (Editing by Susan Fenton)

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