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Brexit may slow growth

State institute’s analysts work with three scenarios.

Illlustrative stock photo(Source: AP/TASR)

The United Kingdom’s departure from the European Union may reduce Slovak economic growth. It may fall by 0.1-0.2 percentage points this year, while in 2017 it may go down by 0-0.3 percentage points and in 2019 by 0.1-0.9 percent, according to the latest analysis issued by the Institute for Financial Policy (IFP), which runs under the Finance Ministry.

The number of new jobs created by the end of 2019 may drop by 7,000 at most.

“In context of the brisk dynamics of the labour market expected by the latest prognosis the impact will be only minimal,” IFP analysts wrote, as quoted by the TASR newswire.

A stronger nominal rate will also decrease the import inflation, due to which the rise in prices will decrease by 0.1-0.4 percent, IFP predicts.

The analysts also warn that the calculation of economic impacts of Brexit on EU countries is accompanied by great uncertainty and the effects of various institutions are very different. Thus IFP works with three various scenarios: optimistic, realistic and pessimistic.

“If predictions of the middle, realistic scenario of IFP came true, Slovakia’s GDP growth will be by 0.1 percentage points lower this and also next year,” the analysts continued, as quoted by TASR, adding that the cumulative GDP loss by 2019 would account for 0.5 percent.

Moreover, the employment would drop by 0.2 percent, which represents nearly 4,000 jobs. The inflation would drop by 0.9 percentage points, as reported by TASR.

Brexit will influence Slovakia in several ways.

“The slow-down of the British economy will have a direct impact on our exporters,” IFP explained. “Our economy, however, will be more affected secondarily, via our main business partners.”

The United Kingdom is the seventh most important business partner for Slovakia, with the country sending 5.5 percent of its exports to the country last year. Exports are more than €2.7 billion higher than imports, which is Slovakia's second highest foreign trade surplus. The most exported goods are vehicles, followed by electronics, TASR reported.

“Cars as well as electronics belong to products sensitive to price changes,” IFP analysts said. “The depreciation of the British pound will decrease the attractiveness and availability of our products for British consumers.”

Topic: Economics

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