NBS downgrades the growth prediction

The prognosis is impacted by the drop in investments, the central bank says.

The National Bank of SlovakiaThe National Bank of Slovakia (Source: Sme)

The National Bank of Slovakia (NBS) has downgraded its prognosis for the country’s economic development in the following years, particularly due to the end of the previous EU programming period which has resulted in a drop in investments.

It seems that private investments also depend on EU funds more than expected, said Ján Tóth, the NBS’s vice-governor.

The data for this and next year have also been impacted by the expectation of slightly weaker foreign demand, the SITA newswire reported.

As a result, the NBS has revised its GDP growth prognosis for 2016 and 2017 by 0.2 percentage points to 3.3 percent and 3.1 percent, respectively.

In following years, however, the growth dynamics will gradually increase to 4.2 percent in 2018 and 4.6 percent in 2019. While in the former the economy will be impacted by the investment of new carmaker Jaguar Land Rover (JLR), better drawing of money from EU funds and stronger domestic demand, in the latter the economy will fully benefit from JLR’s production and the expansion of production in Bratislava-based Volkswagen. The carmakers will contribute 1.1 percentage points to economic growth in 2019, SITA reported.

The continuing solid economic growth will result in creating more jobs. After this year’s increase in employment by 2.3 percent, it will rise by 1.3 percent next year, 1.1 percent in 2018 and 0.9 percent in 2019.

The unemployment rate will drop from this year’s 9.8 percent to 9 percent next year, 8.3 percent in 2018 and 7.7 percent the following year, according to the NBS predictions.

“The jobless rate will respond more modestly to the positive development of the demand on the labour force as it is expected that the participation and influx of staffers from abroad will increase,” said NBS governor Ján Makúch, as quoted by SITA.

The higher demand for a qualified labour force will be reflected in an increase in wages, which should also reflect in the growth of labour productivity and prices, Makúch added.

Nominal wages will increase 3.4 percent this year, and then 4 percent in 2017, 4.5 percent in 2018 and 4.6 percent in 2019. Taking inflation into consideration, wages are expected to rise by 3.9 percent this year, 2.7 percent next year, 2.6 percent the following year and 2.5 percent in 2019.

The NBS also predicts that after this year’s deflation at 0.5 percent, prices will start rising again next year, with inflation amounting to 1.2 percent, which is 0.1 percentage points more than the NBS originally predicted. The central bank also increased its expectations for inflation in 2018 and 2019 by 0.1 percentage points, to 1.8 and 1.9 percent, respectively, SITA reported.

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