WHILE the regular quarterly prognosis of the National Bank of Slovakia (NBS) has not drawn a lot of media attention, perhaps because it does not differ significantly from the previous one from September, it struck the right cord with Prime Minister Robert Fico. As he said at a special press conference, the central bank prognosis has made his government’s targets for economic growth and unemployment more realistic.

The NBS predicts for 2014 economic growth at 2.2 percent, which should climb to 3.1 percent in 2015. Fico believes that this level of growth will have a fundamental influence over unemployment, as it is generally believed that economic growth of 3 percent or more enables the creation of new jobs.
“There are real foundations created for the decrease of unemployment in 2014, 2015 and 2016, by which also our political goals can be significantly fulfilled,” said Fico, as cited by the TASR newswire.

But at the same time Fico warned that economic growth may have a different quality, and that there is a danger it will not create new jobs in the Slovak labour market.

Slovakia’s economy will grow by 0.9 percent of gross domestic product (GDP) in 2013, the NBS stated in its prediction for the final quarter of the year and the next two years, which only confirmed its forecast from September.

“With regard to the basic numbers concerning economic development, the prognosis is very, very similar to the previous forecast,” NBS vice-governor Ján Tóth said at a press conference in Bratislava on December 10.

The central bank’s latest update only slightly modifies the GDP growth forecast for the coming years. For 2014 it expects economic growth at 2.2 percent of GDP, while it originally predicted 2.1 percent. In 2015, the forecasted growth decreased from 3.2 to 3.1 percent.

According to Tóth, the small changes in expectations for next year are mainly due to fiscal consolidation done through more one-off measures than originally expected.

NBS’ inflation forecast for this year changed from 1.7 percent to 1.5 percent. Inflation for 2014 was originally estimated at 1.5 percent. However, according to the latest estimates, it is expected to drop to 1.3 percent. The 2015 forecast remains unchanged, at 1.8 percent.

“The relatively low increase in prices should reflect weak consumer demand, a drop in energy prices and the stabilisation of food prices, and inflation should also be dampened by the economic cycle,” said NBS governor Jozef Makúch.

The latest prognosis differs in the estimate of nominal wages, and also reflects the 5-percent increase in the wages of teachers and the 2-percent increase in the wages of other public sector workers.

“This means that we increase the general growth in wages by 0.4 percentage points to 3.2 percent in 2014 and below 4 percent in 2015,” said Tóth.

Coupled with lower inflation than originally expected, the NBS predicts that real wages will grow by 2 percent in 2014 and 2.1 percent in 2015.

Most bank analysts regard the central bank’s prognosis for 2013, 2014 and 2015 as realistic, and their own forecasts oscillate around the same numbers.

UniCredit Bank Czech Republic and Slovakia and Tatra Banka estimate economic growth in 2013 at 0.9 percent too, while Tatra Banka is just revising its prognoses for the following years.

“But it seems that our estimate for 2014 will be almost identical with that of the NBS,” Juraj Valachy, senior analyst with Tatra Banka, told The Slovak Spectator. “We will probably not change our prognosis for 2015, and it remains at 3.0 percent.”

UniCredit Bank Czech Republic and Slovakia expects economic growth to accelerate, fuelled by improving foreign demand as well as resuming domestic demand.

“In 2014 the government plans to halt fiscal consolidation, which should bring the economy a positive growth impulse,” Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia, told The Slovak Spectator. “Along with more robust and especially more stable economic growth supported by stronger foreign demand, we also expect a gradual revival of the investment activities of local companies. The improving consumer confidence and the acceleration of the growth of real wages, also thanks to almost zero inflation, should also support the revival of household consumption.”

UniCredit is more optimistic for the years 2014 and 2015, for which it expects GDP to grow 2.9 percent and 3.6 percent, respectively.

Poštová Banka is keeping its estimate for 2013 around 1 percent, and around 2 percent for 2014, and thus its estimates correspond with the NBS’ prognosis, Eva Sadovská, analyst with Poštová Banka, told The Slovak Spectator. Slovenská Sporiteľňa is more conservative, estimating economic growth in 2013 at 0.7 percent. For 2014 and 2015 it estimates economic growth at 1.7 and 2.5 percent, respectively, Mária Valachyová, the head of the market analysis department of Slovenská Sporiteľňa, told The Slovak Spectator.

Factors to affect 2014-15

Sadovská believes that Slovakia’s economic development will be propelled especially by foreign demand.

“Domestic consumption will stagnate or grow only moderately,” said Sadovská, expecting that the cautious behaviour of the consumer, reflecting persistently high unemployment, which she estimates at between 13 and 14 percent for 2014, will continue to hinder it.

Valachyová agrees that the theme of unemployment, which remains one of the highest in the region as well as in the whole of Europe, will continue to resonate.

“However, we will need higher economic growth than 1-2 percent for it to decrease,” said Valachyová.
Tatra Banka expects household consumption and bank investments to revive in 2014.

“This will be a considerable difference compared with 2013,” Valachy of Tatra Banka said. “Moreover, it is possible that inflation will be, in the end, even lower than our prognosis, at an average of 0.9 percent for 2014, and thus that household consumption will propel the growth of GDP even higher than the mentioned 2.2 percent.”

Koršňák of UniCredit believes that a more significant revival of the economies of Slovakia’s most important trade partners should especially help boost Slovakia’s economy.

This refers especially to Germany, which, according to UniCredit estimates, should grow by 2.5 percent annually in 2014 and 2015.

“The improvement of the external environment should also gradually be reflected in the recovery of domestic demand, especially during the second half of 2014 and 2015,” said Koršňák. “Stronger domestic demand should also be reflected in higher imports and halt the growth of the surplus foreign trade balance. Thus, economic growth should be more balanced in 2014 and 2015, driven by foreign as well as domestic demand.”