2013 promises to be yet another challenging year for Slovakia, which in December had its highest unemployment rate in nine years. The Finance Ministry has, as a result, whittled its forecast for Slovakia’s economic performance down to 1.2 percent, explaining that the “debt crisis in the eurozone over the past months has unfavourably impacted the economies of our main trading partners and increasingly concerns Slovakia as well”.
This year, weak foreign demand will no longer be compensated by new production launched by Slovakia’s carmakers, and thus the impact of the crisis will be more significant than last year, said the Finance Ministry’s Financial Policy Institute (IFP), which cut its prognosis from September by 0.9 percentage points, in its release.
“Household spending will thus continue to be restrained by developments with wages and unemployment,” the IFP has said.
The ministry published its new outlook shortly after the country’s central bank on January 29 downscaled its estimate from December 2012 from 1.6 percent to 1.3 percent, suggesting that the prediction was influenced overall by two factors: moderately slower growth of foreign demand, which impacted the country’s export performance, and worse-than-expected indicators in the domestic economy.
Slower economic growth will mean lower tax revenues for the state, which might cause some headaches for Finance Minister Peter Kažimír, since the approved state budget was based on a more optimistic estimate. Kažimír’s department is expected to release its tax revenue prognosis in February, the SITA newswire reported.
“Quite realistically, this macro-prognosis will be negatively reflected in the revenues of the state budget,” Kažimír told SITA on January 30. “Only the prognosis of tax revenues will show how many tens of millions of euros it will be.”
Yet, Kažimír said he does not think that scaling back economic growth will harm Slovakia’s ability to meet its planned deficit targets.
The state budget for 2013, which parliament passed in December 2012, anticipates revenues of €13.916 billion and expenditure of €17.002 billion, with the budget gap therefore forecast to be €3.085 billion.
“I am a realist and it has been completely clear to me since the end of last year that we will have to fight all year with the factors we today have on the table,” Kažimír said as quoted by SITA.
Nevertheless, the IFP claims that in the upcoming years the Slovak economy should return to growth of 3 percent although for 2014, the IFP reduced its original prediction by 0.6 percentage points to 2.9 percent. The institute assumes that in 2015 the economy will grow by 3.3 percent. The National Bank of Slovakia is slightly more optimistic, saying that in 2014 the Slovak economy should grow at 3.3 percent.
Labour market prospects
The IFP admits that 2013 holds gloomier prospects for the labour market, suggesting that 2012’s economic growth was fuelled mainly by increasing productivity and has not brought many new jobs.
“Moreover, fiscal consolidation, too, will impact the labour market this year,” reads the IFP prognosis, adding that the number of employed people might drop by 0.5 percent. “A more significant increase in employment should come together with faster growth of GDP in 2014.”
Unemployment should reach pre-crisis levels - somewhere around 12 percent - in 2016, the institute assumes. Nevertheless, in 2013 the jobless rate should remain at 14 percent, according to the IFP.
Meanwhile, the National Bank of Slovakia predicts that the inflation rate will drop from 3.7 percent in 2012 to 2.2 and 1.9 percent in 2013 and 2014, respectively, the TASR newswire reported. The IFP also says that prices will grow significantly slower in 2013 than in 2012, estimating 2.3 percent year-on-year growth.
4. Feb 2013 at 0:00 | Compiled by Spectator staff