Central bank governor: Things are worse for Slovakia than expected

The National Bank of Slovakia revises its GDP estimate downward.

The National Bank of Slovakia. The National Bank of Slovakia. (Source: Jana Liptáková)

In a worst-case scenario, the Slovak coronavirus-hit economy may contract by as much as 13.5 percent this year.

The National Bank of Slovakia (NBS), the country’s central bank, assumes this figure in its revised outlook of the possible economic development of Slovakia for 2020. In a best-case scenario, Slovakia’s gross domestic product would fall by 5.8 percent this year, still more than a decline of 5.4 percent Slovakia experienced during the financial crisis in 2009.

The NBS considers the medium-scenario’s decline of around 9 percent being most likely. One month ago the NBS’s scenarios indicated a contraction between 1.4 and 9.4 percent this year, seeing the medium-case scenario with a 4.5 percent decline as the most probable.

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While the latest outlook shows that economic developments will be worse than what was expected in March, developments on the labour market will be more positive.

“This is because the government in the meantime has adopted several measures aimed at the labour market in order to convince employers to let go as few employees as possible,” said Kažimír, explaining that this could save 50,000 jobs.

The recession may deprive 46,000-100,000 people of their jobs based on the updated three scenarios. The central bank expects both nominal and real salaries to drop by approximately 3 percent in the medium-case scenario.

In terms of the general government deficit, NBS estimates that it will decrease between 6.9-10.3 percent of GDP (10 percent in the medium-term scenario), while the public finance debt will reach 57-64 percent of GDP (60 percent in the medium-term scenario).

“The reasons are purely logical - the state will have fewer revenues and more expenditures,” said Kažimír.

NBS predicts that the decline in both the domestic and global economy will rebound from the recession in the second quarter of 2020. Subsequently, a dynamic renewal should take place, which means that the economy curve should be V-shaped. The Slovak economy should grow by 7.2 to 8.3 percent in 2021.

“However, even here there are some variables,” said Kažimír, adding that the longer Slovakia stays in quarantine, the V-shaped curve may change to the less positive U-curve.

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