Economic growth might be slower than expected (source: SITA)
THE NATIONAL Bank of Slovakia (NBS), the country’s central bank, believes that Slovakia’s economy will grow much more slowly this year than it previously predicted and has almost halved its prediction of GDP growth for 2013. In the latest of a series of downward revisions, the NBS on March 26 cut its forecast for growth this year from 1.3 percent to 0.7 percent. It also reduced its prediction for the following year by 0.5 percentage points, to 2.8 percent. Slovakia’s economy grew 2 percent in 2012.
NBS governor Jozef Makúch explained that the central bank was cutting the forecast after taking into consideration negative tendencies mostly in the domestic economy, but also moderately lower foreign demand. The only item which contributed positively to economic growth was net exports.
The revised NBS prognosis is the latest in a series of downward revisions; as recently as last summer the central bank was forecasting GDP growth of more than 3 percent for 2013. In January the NBS reduced its prognosis for 2013 from 1.6 percent to 1.3 percent.
According to Makúch, negative risks prevail in the medium term.
“Foreign demand may be negatively affected by consolidation measures, the debt crisis and the situation in the banking sector in the eurozone,” said Makúch, as quoted by the SITA newswire.
The NBS prognosis came only a few days after commercial banks had cut their economic growth predictions. In their March survey they reduced their joint economic growth prediction by 0.1 of a percentage point to 0.9 percent for 2013. In January, the Finance Ministry reduced its forecast for 2013 to 1.2 percent, from the 2.1 percent forecast in September.
The slower-than-expected economic growth will also affect the situation on the labour market. The NBS predicts that employment will drop by 0.8 percent, 0.1 of a percentage point more than forecast in January. It believes employment will then rise by 0.2 percent in 2014. The NBS also foresees a worsening of the unemployment rate by 0.3 percentage points to 14.9 percent this year. The rate is expected to fall slightly to 14.6 percent in 2014, a deterioration from the 14.3 percent estimated in December.
Below-par economic growth may mean that the state collects less in taxes and levies. Ján Tóth, the NBS vice-governor, estimated that if the bank’s prediction is fulfilled, it would mean a cut in revenue coming from taxes and levies of €130 million. Moreover, if risks indicated by the Budgetary Responsibility Council in the health-care sector and local administration are fulfilled, the gap may grow to €390 million, even when the effects of the austerity measures announced so far are taken into consideration.
“Our prediction assumes that additional austerity measures would be taken,” Tóth said, as quoted by the ČTK newswire. These austerity measures would be needed to help the government keep its promise to reduce the public finance deficit to below 3 percent this year.
The Finance Ministry will reveal its next forecast in June, after data on economic development during the first quarter of 2013 is known. It has said that collection of taxes has improved.
