Slovakia's economy should grow by only 0.5 percent this year, while inflation should reach 3.9 percent, according to the latest spring prognosis published by Slovakia's central bank (NBS) on Tuesday.
The outlook is being worsened by the current conflict in Iran and the Middle East. If it lasts longer than a few weeks and has a greater negative impact on the global economy, developments in Slovakia will be even worse. The economy could contract slightly and inflation could rise over the longer term to levels of around 6 percent, stated NBS.
"We had one war here, now we have two; we had a number of geopolitical issues and economic problems, and now we have many more. In this international-political and economic stagnation, we estimate that our economy will grow some 0.5 percent this year, and inflation will return to levels of about 4 percent due to the rising prices of some energy sources," stated NBS governor Peter Kažimír.
According to Kažimír, this scenario is still relatively favourable, based on the assumption that the war in Iran and the Middle East will end relatively quickly, i.e. within a few weeks. The governor warned that other scenarios are also possible, with less favourable assumptions, i.e. that the war in Iran will last longer and have more devastating consequences for technologies related to the extraction, processing and transport of oil, gas and related products.
"In such a case, we estimate that the Slovak economy won't grow this year and that inflation could approach levels of around 6 percent. Of course, such a scenario would also mean certain shocks or adverse impacts on the labour market, including job losses," warned Kazimir. He noted that Slovakia is a small and open economy, and such countries are far more sensitive to economic shocks.
NBS's pessimistic scenario suggests a possible shrinking of the Slovak economy by 0.3 percent this year and a slight recovery to 1.1 percent next year. In such a case, inflation would accelerate to 5.4 percent this year and remain above 6 percent for the next two years.
According to a flash estimate of inflation measured by the Harmonised Index of Consumer Prices (HICP), the overall price level remained unchanged in March. However, this pushed the year-over-year inflation rate down to 3.7 percent, said analyst at Slovakia's central bank (NBS) Branislav Karmazin, on Tuesday, adding that compared to the expectations of the spring forecast, it was lower by roughly half a percentage point, mainly due to food prices.
According to Karmazin, two consecutive monthly declines in food prices likely offset the significant price increases seen at the beginning of the year. "Another explanation for the atypical March trend could be more significant pre-Easter price adjustments. From a historical perspective, the first three months thus brought atypical, even extreme, price fluctuations," he added.
Despite the decline in March, NBS expects food price growth to accelerate in the coming months to levels closer to the spring forecast, mainly due to higher agricultural commodity prices and the transfer of higher energy costs to consumer prices.
The attack on Iran, which caused a sharp rise in energy commodity prices, has so far had a smaller impact on inflation than in neighbouring countries or other Eurozone members. Energy prices in Slovakia rose by 0.7 percent in March compared to February, according to a flash estimate, likely as a result of the government's efforts to curb fuel price increases.
Petrol and diesel prices thus don't yet fully reflect the disruption in oil supplies on global markets caused by the ongoing conflict in the Persian Gulf. According to European Commission data, current prices at petrol stations are, on average, lower than in neighbouring
Source: TASR
