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FinMin downgrades growth forecast for this year

But in following years, the economy should accelerate, mostly thanks to car production, state analysts say.

Car production should contribute to economic growth.(Source: Sme)

The Slovak economy should grow by 3.3 percent this year, before growing at an even brisker clip in the years to come.

Compared to the previous prognosis, the forecast for 2017 has been lowered, as opposed to the prediction for next year, which has improved, according to the latest macroeconomic prognosis released by the Institute for Financial Policy (IFP), running under the Finance Ministry.

This year’s expected GDP growth matches last year’s figure.

“The structure of growth will be well balanced, the economy will be driven by domestic and foreign demand,” the IFP said, as quoted by the TASR newswire. “An increase in investments will be spurred on by the public sector, the automotive industry and the construction of the D4/R7 [Bratislava ring road project – ed. note].”

In the years to come growth should be boosted especially by new automotive production.

“Economic growth in 2018 and 2019 will accelerate to 4 and 4.4 percent thanks to new production capacities,” the IFP predicts. “The slight delay in building the Jaguar Land Rover plant and the construction of the D4/R7 bypass will foster growth in investments next year.”

Growth in exports by as much as 7 percent in 2018 and 2019, is envisaged to come hard on the heels of the launch of new car production, TASR reported.

The prospects for the labour market are also good, as the employment rate is predicted to go up by 1.8 percent and the economy should add 42,000 new jobs this year.

“The positive developments on the job market will reduce the unemployment rate to 8.4 percent [this year],” the IFP said, as quoted by TASR. Employment growth in 2018 should amount to 1.1 percent.

The IFP expects salaries to rise in all sectors except market services. The average nominal salary should go up by 3.5 percent to €942 per month this year, with real salaries to follow suit, growing by 2.4 percent.

Consumer prices should bottom out and resume growth, at 1.1 percent in 2017, primarily buoyed by net inflation. Higher crude oil prices will translate into higher fuel prices and, by extension, higher prices for foodstuffs and services, according to the analysts.

As for risks potentially jeopardising growth, the analysts primarily point to the unclear political prospects in Europe, the hard Brexit scenario and the onset of protectionism in global trade.

“The fuzziness of upcoming political moves makes it impossible to quantify the extent of these risks at this time,” the IFP stated, as quoted by TASR. “The instability of the banking sector in Italy is another risk. By contrast, fiscal expansion in the United States and the excessively early lifting of the Czech National Bank’s exchange-rate commitment are positive risks.”

Topic: Economics

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