MACRO ECONOMY

Election year set to create illusion

SINCE 2002 is the year of parliamentary elections, it is expected to be different from the previous three years in the area of macro economy.
In the election year, government will attempt to ease the influence of economic transformation on the citizens.
In 2002, this will be seen in some major areas of macro economic development including, inflation development and growth in real wages. All of these categories will be considerably improved in comparison with the previous three years.

SINCE 2002 is the year of parliamentary elections, it is expected to be different from the previous three years in the area of macro economy.

In the election year, government will attempt to ease the influence of economic transformation on the citizens.

In 2002, this will be seen in some major areas of macro economic development including, inflation development and growth in real wages. All of these categories will be considerably improved in comparison with the previous three years.

The formulae for a boosted domestic consumption rate this year, according to analysts, is: no increase in the price of gas, electricity, water and sewage which will keep inflation under five per cent and a significant growth in take home pay real wages and thus boost the domestic consumption.

However, prices will have to be increased in 2003 because Slovakia will be obliged to follow EU rules prompting further increases in regulated utility prices. This will return inflation in 2003 back to its 2001 figure of 6.5 per cent and in turn begin a slow down in the growth of real wages. This is the reason why some analyst and even the Central Bank call 2002 'The year of illusion'.

Vladimír Tvaroška, adviser to the Deputy Premier for Economy Ivan Mikloš, said: "Taking into consideration the political reasons, it is quite understandable that the government did not increase the major regulated prices for the election year, but from the economic point of view the government should have stuck to its deregulation schedule."

In 1999, regulated prices increased by 38.2 per cent, in 2001 it was 17 per cent but the increase for this year is expected to stand at only 2.8 per cent. Headline inflation in 1999 was 14.1 per cent, 2001 6.5 per cent and the 2002 figure is expected to stand at 4.8 per cent.

These figures, when applied to real wages, show that in 1999 there was the negative growth of 2.5 per cent, in 2001 the growth stood at 0.8 per cent and in 2002 it is estimated that real wages will grow by five per cent.

"This clearly shows that while in 2001, the growth of the economy was pushed by investments, this year it will be the domestic consumption thanks to the growth in wages," said Marek Gábriš, an analyst with ČSOB bank.

Domestic consumption is expected to help the economy grow from 3.1 per cent in 2001 to about 3.7 per cent in 2002.

However, two indicators are expected to remain static: unemployment is expected to stand at around 18.5 per cent of the work force and relatively low interest rates, with short-term rates standing at 7.75 per cent.

"We will not see any significant drop of the unemployment rate in 2002 although the economy is expected to grow because the growth will not be significant enough to drop the figure," said Róbert Prega, an analyst with Tatra Banka.

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