BRATISLAVA, January 4, (WEBNOVINY) – The activity of the Slovak economy will slow this year after the growth resumption last year. Still lagging-behind local consumption and fiscal consolidation are likely to be behind this development. On the other hand, the industry fostered by strong foreign demand is expected to be the driving force of the Slovak economy.
The retail sectors and other segments focused on local consumers should gradually rebound but they will likely still lag behind. The expected improvement on the labor market should help them but the fiscal consolidation will, in contrast, hamper this sphere, says Slovenska Sporitelna analyst Michal Musak.
Bank analysts estimate last year’s economic growth at 4 percent of GDP, but their forecasts for 2011 are 0.5 percentage points lower. The National Bank of Slovakia and the Ministry of Finance are more prudent with their estimates, seeing the economic growth at 3 or 3.3 percent of GDP, respectively.
Both the central bank and the ministry admit that the fiscal consolidation will play a significant role in slower economic activity. The opposition frequently used this argument against the first budget compiled by the Cabinet of Iveta Radicova. Analysts however counter that the deficit reduction is inevitable at present. The prepared fiscal consolidation is one of the factors that will likely limit the economic growth, and temporarily also the labor market. But the consolidation in more than necessary since Slovakia’s primary deficit, net of loan installments, is one of the highest in Europe, explains VUB analyst Andrej Arady.
Analysts claim that it is still relatively difficult to prognosticate the economic development. The power of the impact of fiscal consolidation in Slovakia and other countries on the economic growth remains a risky factor, according to Musak. In spite of the projected slowdown in 2011, Slovakia is expected to keep its position among the EU’s fastest growing economies. Following the 4.7-percent contraction in 2009 and an estimated growth of 4 percent of GDP a year later, the local economy should firm by over 3 percent of GDP in 2011.
SITA