Economy slightly lags behind potential

SLOVAKIA’S economy is currently about 1 percent below its potential, according to the report by the Council for Budgetary Responsibility, a supervisory body over the economic management of the state. The council was seeking the best way to calculate the potential product based on which it would be able to determine the structural deficit, the SITA newswire reported on March 11.

SLOVAKIA’S economy is currently about 1 percent below its potential, according to the report by the Council for Budgetary Responsibility, a supervisory body over the economic management of the state. The council was seeking the best way to calculate the potential product based on which it would be able to determine the structural deficit, the SITA newswire reported on March 11.

The Council for Budgetary Responsibility has already chosen the averaging of the available methods that are based on other model expectations, as well as other data.

“The output gap measured this way will be important input for calculating the structural balance and consolidation effort in Slovakia,” reads the commentary of the council, as reported by SITA.

The model allows one to see a strong conjuncture and unsustainable trends, especially in years 1997-98, when the performance of Slovakia’s economy stood at nearly 2 percent above its potential, as well as shortly before the beginning of the financial crisis in the years 2007-08, when the economy was nearly 4 percent above its average, SITA wrote.

On the other hand, the strongest recession came in 2009 when the economy lagged below its potential by 3 percent.

The main motivation for improving the estimated potential product and output is, according to the Council for Budgetary Responsibility, the ratification of fiscal compact and changes passed within the Stability and Growth Pact. Based on new legislation it will be necessary to measure and evaluate whether the divergence of structural deficit and the mid-term goals is not too big. The excessive divergence would launch correction mechanisms that would either increase income to the budget or reduce expenditures, SITA wrote.

Source: SITA

Compiled by Radka Minarechová from press reports

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