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ECONOMIC BRIEFS

OECD survey sees negative short-term outlook for Slovakia

If the Slovak government manages to carry out its economic stabilisation package, the country's economy could return to stable growth. However, from the short-term perspective Slovakia cannot avoid deceleration of economic growth, which could deepen unemployment and increase inflation, the Organization of Economic Cooperation and Development (OECD) wrote in its economic survey of the Slovak Republic for 1998-99.

The report states that problems of external financing will be one of the factors that would halt the robust growth of Slovakia's economy from previous years. It adds that there is a potential risk that the unfavourable development of the economy will be dramatic, which would have a serious impact on the government's effort to carry out extensive structural reforms.

The OECD expects that decelerated growth of the world economy will negatively influence Slovakia's export output. On the domestic market, the OECD assumes a drop of real income as a consequence of a slow-down in wage increases, a weakening of the Slovak currency and a growth of regulated prices. The OECD estimates the GDP growth to drop to 2 percent from 6 percent level reported in recent years.

The persisting deficits on the current account and the state budget will negatively influence the exchange rate of the Slovak crown and interest rates, which will have an unfavourable effect for corporate entities with foreign loans, the report continues. Insufficient structural reforms will deepen financial problems of domestic companies and banks, especially because of the growth in arrears and bad loans.

Regarding inflation, the OECD expects that further deregulation of prices in the near future and an increase in public fees as well as a weakening of the Slovak currency will result in higher inflation. According to an OECD estimation, in 1999 Slovakia should report 9-10% inflation in 1999 and 8% in the following year. This is in spite of the intention of the National Bank of Slovakia (NBS) to avert an inflation spiral that could ensue from these changes in prices and a government declaration that it intends to ward off inflation.

OECD says that chances for a considerable improvement in employment are limited. The robust economic growth in the recent years did not contribute to the creation of new jobs.

Moreover, the OECD assumes that unemployment rate in some sectors would even grow as the restructuring process accelerates.

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