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GDP growth forecasts cut

FOLLOWING the lead of international organisations like the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD), which recently reduced their forecasts for Slovak economic growth in 2013, the Slovak central bank and the Finance Ministry have now slashed their predictions too.

FOLLOWING the lead of international organisations like the International Monetary Fund (IMF) and Organisation for Economic Cooperation and Development (OECD), which recently reduced their forecasts for Slovak economic growth in 2013, the Slovak central bank and the Finance Ministry have now slashed their predictions too.

The National Bank of Slovakia (NBS) decreased its forecast by 0.1 percentage point to 0.6 percent while the Finance Ministry was even less optimistic, slashing its previous forecast from 1.2 percent to 0.5 percent. The central bank as well as the Finance Ministry revealed their latest forecasts on June 11. Both hinted at an uptick in growth towards the end of 2013. In 2012 Slovakia’s economy grew by 2 percent, but posted 0.6-percent growth year-on-year in the first quarter of 2013, down slightly from the 0.7-percent rate recorded in the last quarter of 2012.

Both the NBS and the Finance Ministry see ongoing recession in Slovakia’s most important trading partners and weak domestic demand as being behind the country’s slower-than-expected economic growth.

“The unfavourable situation in Europe will negatively influence export and investment activities in Slovakia,” the Finance Ministry’s Financial Policy Institute (IFP) wrote in its macroeconomic forecast for 2013-2016. “Fiscal consolidation and problems in the labour market will continue to dampen domestic consumption.”

The IFP pointed out that the economies of Slovakia’s main trading partners have continued to slow.
“The recession in the eurozone deepened, with its economy registering a decline for the sixth quarter in a row,” the IFP wrote.

The central bank and the ministry are more optimistic with regards to the end of 2013 and later. The NBS believes that foreign demand bottomed out during the first quarter of 2013 and that it will gradually grow, but says a significant revival will only emerge towards the end of 2013. The IFP expects a gradual increase in economic growth thanks to a revival in economic activity worldwide from the end of 2013, and forecasts more robust growth of 2.2 percent next year. Growth should return to around 3 percent at the end of the forecast period, in 2016, it predicts.

Tatra Banka, one of the main Slovak banks, is more upbeat with regards to 2013.

“Our estimate is a bit more optimistic, at 0.9 percent,” Juraj Valachy, senior analyst with Tatra Banka, told The Slovak Spectator. “For the time being export of goods is the only source of growth, while consumption by households and government has decreased in year-on-year terms.”

What Valachy sees as a negative sign is a drop in the volume of investments, by 8.4 percent year-on-year.

“But we think that also the exceptionally cold winter, or the winter rich in snow, which slowed investment especially in buildings, is behind this drop,” said Valachy. “Thus we expect that investments in the second quarter of 2013 will develop better. Similarly, consumption by households should not decrease so much as during the first quarter of 2013.”

Forecasts for 2013-2014

The IFP predicts that gross domestic product (GDP) will grow by 0.5 percent in 2013, while the NBS forecasts 0.6 percent. For 2014, the IFP expects GDP to grow by 2.2 percent (down 0.7 percentage points compared to its forecast from January), while the NBS puts it at 2.3 percent, down 0.5 percentage points compared with its previous prognosis. The IFP is also less optimistic for 2015, forecasting economic growth of 2.9 percent compared with the central bank’s 3.3 percent. Both the IFP and the central bank reduced their 2015 forecasts by 0.5 points. The IFP expects that Slovakia’s economy will grow by 3.5 percent in 2016, a reduction of just 0.1 percentage point. The prognosis of the central bank did not cover this year.

Tatra Banka regards the IFP’s prognosis as realistic, especially when it comes to 2014-2016. Tatra Banka expects economic growth to be 2 percent in 2014.

“Our forecast, as well as the forecast of the IFP, foresees a gradual revival during the second half of 2013 and the continuation of this revival in 2014,” said Valachy, cautioning that the basis for these expectations has not been confirmed by indicators like retail sales or industrial production. As a result, he noted, the prognoses of the IFP as well as Tatra Banka could still turn out to be too high.

The OECD and the IMF both doused hopes of buoyant growth in the Slovak economy in 2013. After the OECD in late May reduced its estimate for Slovakia’s GDP growth from 2 percent to 0.8 percent, a week later the IMF said it was now forecasting that the country’s economy would grow by just 0.6 percent this year.

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