July 1 (Bloomberg) -- Six months after Slovakia joined the euro, the government is investigating why its citizens are doing their shopping in Hungary.

The forint’s 14 percent decline against the single currency in a year is sending Slovaks across their borders to buy cars, appliances and food that is as much as one-third cheaper. Igor Barat, the government’s euro coordinator, said on June 29 that the two-month study will probe how “shopping tourism” arose from euro adoption.

Slovakia and Slovenia, the only two eastern European nations to use the euro, are in the worst recessions since they threw off communism. The currency’s strength is crimping sales for retailers such as Slovak supermarket chain Coop Jednota and exporters including Slovenian appliance maker Gorenje Group d.d. and postponing the recovery from the global financial crisis.

“There are serious headwinds ahead,” said Simon Tilford, chief economist at London’s Centre for European Reform. “For Slovakia and Slovenia, the strong euro exposes them to competitive risk. If it persists, there’s no doubt the strength will complicate an already difficult period.”

The two countries may remain eastern Europe’s only euro members for at least five years. Polish leaders are considering dropping their plan to adopt the euro in 2012, while Hungarians and Czechs won’t enter until at least 2014. The Baltic states of Latvia, Lithuania and Estonia, whose currencies are linked to the euro in preparation for adoption, have the European Union’s deepest recessions.

Competitive Exporters

The pain from the euro transition during the global crisis offsets the currency’s long-term advantages of exchange stability and freer trade, said Jan Toth, an economist at Unicredit SpA’s Slovak office. At the same time, it benefits the non-euro countries.

The weakness of those currencies “means their economies would be in a better position to recover because it makes their exporters more competitive,” said Henrik Gullberg, a London currency strategist at Frankfurt-based Deutsche Bank AG, the world’s biggest foreign-exchange trader. “I see an appreciation of the eastern currencies in the longer term.”

A survey of currency traders by Bloomberg shows all eastern currencies are expected to strengthen in the next 18 months, by between 6.6 percent and 17 percent.

May retail sales dropped an annual 13.4 percent in Slovenia, whose gross domestic product declined an annual 8.5 percent in the first quarter. In Slovakia, GDP contracted 5.6 percent. Retail sales were down 9.2 percent in April as fewer people stayed home to shop. In Hungary, the beneficiary of shopping tourism, the decline was 4.1 percent.

Selling to Slovaks

“Hungary has become Slovakia’s fourth-largest retailer,” quipped Viliam Trska, the head of the Slovak unit of Cincinnati- based Procter & Gamble Co., the world’s largest consumer- products maker.

The Polish zloty has declined almost 25 percent against the euro in the past 12 months, the second-most among 26 emerging- market currencies tracked by Bloomberg, after the Icelandic krona. The Hungarian forint has lost 14 percent.

“In times of crisis like this, the euro may really act as a disadvantage” because smaller members can’t devalue their currencies to become more competitive, said Juraj Kotian, an Erste Bank AG economist in Vienna.

Trska is both enjoying the cheaper shopping and seeing his company hurt by it. Just after Slovakia became the 16th member of the euro on Jan. 1, he crossed the border to Hungary and bought a new Citroen C4, saving 30 percent.

Soap Prices

His Procter & Gamble unit, by contrast, has slashed prices of its soaps and household cleaners by as much as 25 percent to induce other Slovaks to shop at home.

“You can’t fight it,” Trska, 33, said in Bratislava, the Slovak capital. “If it’s significantly cheaper to buy somewhere else, why would you buy it here?”

Mercator Poslovni Sistem d.d., Slovenia’s largest supermarket chain, lost 7.7 million euros ($11 million) in Serbia this year after the weak dinar eroded revenue in euros. The Slovak unit of the U.K.’S Tesco Plc, the country’s biggest food retailer, and building supplies seller Hornbach Holding AG are distributing ads and flyers urging Slovaks to shop at home.

Still, one-third of the cars in a Tesco parking lot in Mosonmagyarovar, a Hungarian town less than half an hour from Bratislava, had Slovak license plates on one recent day. The store employs Slovak-speaking staff and broadcasts in-store promotions in Slovak.

Once a Week

“We come here once a week,” said Zuzana Filkova, 40, a shop assistant from Bratislava, as she loaded her trunk with groceries.

While Tesco doesn’t release country-by-country figures, Coop Jednota, the largest Slovak-owned supermarket chain, had a 2.6 percent sales decline in the first five months in western Slovakia, along the Hungarian and Czech borders. That outstripped a country-wide drop of 1.9 percent.

Gorenje Chief Executive Franjo Bobinac said the rising euro has cost the Velenje, Slovenia-based appliance maker 3 million euros. The company posted a first-quarter loss of 14.47 million euros on May 28 as sales fell 5.6 percent.

“Having a lot of countries inside the EU but not having the euro is a problem,” said Bobinac in a June 10 interview. “It is very difficult, almost impossible, to manage exchange- rate risks 100 percent.”

To contact the reporters on this story: James M. Gomez in Prague at jagomez@bloomberg.netRadoslav Tomek in Bratislava at rtomek@bloomberg.net.

Last Updated: June 30, 2009 18:01 EDT