BRATISLAVA, November 23, (WEBNOVINY) — The Slovak economy will grow by over four percent this year, according to the International Monetary Fund (IMF) report from its October mission here. Also data for the second quarter of 2010 indicate the positive development when the country’s real GDP surged reflecting booming exports and inventories adjustments. Industrial production has reached its pre-crisis levels, and employment increased after falling since the start of the crisis. Some recent indicators of industrial activity and external developments point to some softening of the robust growth rate. Nevertheless, real GDP growth is projected to exceed 4 percent in 2010 as a whole, reads the report.
According to the IMF report, a rebound in private consumption and investment would soften the impact of the fiscal consolidation next year. In contrast, the decline in real public consumption in 2011 is projected to reduce GDP growth by about one-third of a percentage point. Together with continued export growth, the IMF expects the Slovak economy to expand at 3.8 percent in 2011. Nevertheless, the uncertainty surrounding the outlook remains relatively high. The global economic environment remains clouded, facing risks associated with simultaneous fiscal consolidation efforts and possible loss of markets confidence. Furthermore, Slovak employment growth may be sluggish, reflecting the high uncertainty, which could slow the rebound in domestic demand.
The changes in indirect taxes and fees as part of the government plan of public finances consolidation would increase inflation moderately, by 1 percentage point at the maximum. Incorporating the projected modest increase in world food and energy prices, the IMF projects inflation in Slovakia at about 3 percent in 2011.
Despite the ongoing recovery, the IMF projects the general government deficit at about 8 percent of GDP in 2010, broadly unchanged from last year’s outcome. Expenditures have continued to grow at the pre-crisis rate this year, while revenues ebbed, with corporate taxes performing especially poorly, in part reflecting the lagged effect of the sharp fall in corporate profits in 2009. Furthermore, local authorities’ deficits rose in tandem with a drop in personal income tax receipts. Reflecting some difference in the assessment of spending overruns, the IMF’s deficit projection is around 1/4 percentage points of GDP higher than that of the government, which could have implications for the consolidation efforts needed to meet the government’s 2011 deficit target, suggests the report published by the Slovak Finance Ministry.
Meeting next year’s deficit target of below five percent of GDP in the face of expenditure pressures will be very challenging, continues the report. Reducing the wage bill and curbing ministries’ spending will be difficult and will require maintaining consensus within the government on expenditure rationalization. Tighter expenditure control at the local authority’s level and in the health care system will require more effective monitoring and enforcements efforts. Moreover, the plan to increase capital investment using EU funds will only fully materialize with strong coordination and commitment. To achieve the medium-term consolidation goals, including a reduction of the deficit to below 3 percent of GDP by 2013. the IMF recommends an expenditure growth ceiling of 2 percent in real terms for 2012-13, which would enhance the credibility of the commitment to fiscal consolidation, strengthen medium-term focus and planning, and facilitate spending reallocation according to new priorities.
SITA
