The Slovak economy will grow at its fastest pace in 2007

Last update: 14.11.2005 06:00

The Ministry of Finance of the Slovak Republic issued another regular revision of its medium-term prognoses of macroeconomic and fiscal development in October 2005. The aim of the quarter-term forecasts is to issue a complex review of possible macroeconomic risks to the fulfilment of the current multi-year budget for the whole public administration and to specify actual starting points for a future multi-year budget.

The October revision of estimates for the years 2005 – 2008 confirms the conclusions of the June update – i.e. there is positive macroeconomic development which does not carry any risks for the fulfilment of medium-term fiscal targets. However, developments in the external environment – especially the threat of a further growth in oil prices and a slower recovery rate for the EU economy – are still considered to pose the greatest risks to the macroeconomic as well as to the fiscal prognosis.

The prognosis update confirms that the economy of the Slovak Republic is well positioned to achieve a relatively high level of actual growth over the whole horizon monitored (an average annual growth level of 5.4%). The growth dynamic is sustainable – it reflects qualitative changes in the economy, total productivity growth (labour and capital), and increase in the potential product and competitiveness. GNP growth should rise above the 6% level in 2007 when the accrued impact of several positive external factors will reach a peak– the economic growth of important business partners of the Slovak Republic, effects from FDI inflow to Slovakia and higher drawing down and benefits from European funds.

Sustainable economic growth will also create more job opportunities and support employment growth – at a conservative estimate by approximately 0.8% a year. Increasing labour productivity and a reduction in the rate of inflation will create the conditions for sustained growth in real wages in the national economy.

The update of macroeconomic prognoses and tax revenue in 2005 contributed to an improvement in the taxes estimate compared to the budget for the years 2006-2008. But the negative situation in the area of social levies still carried with it risks for the budget. The revision of the tax and levies prognosis of the Ministry of Finance of the Slovak Republic and of the nominal GNP as a whole shows a slight negative risk for the public administration budget, especially for the years 2007-2008. Because of very minor deviations and uncertainty associated with the estimates, the Ministry of Finance does not recommend any modifications being made to the public administration budget.

The final prognosis of the Ministry of Finance was assessed as realistic by the majority of members of the Committee for Macroeconomic Forecasting and the Committee for Task Revenue Forecasts.

Peter Papanek
Ministerial Advisor