Despite the difficult situation, the Slovak economy is expected to grow by 1.2 percent this year, with public investment financed by EU funds and the recovery playing a key role in this. The latest macroeconomic forecast was presented with this information by Finance Minister Michal Horvath and head of the Finance Ministry's Financial Policy Institute (IFP) Juraj Valachy on Thursday.
Expensive prices will weigh on domestic demand this year, slowing GDP growth to 1.2 percent from 1.7 percent last year. Household consumption moderated at the beginning of the year and will fall by 0.5 percent this year. However, people's real disposable incomes should continue to grow in 2023.
Measures adopted by the government and Parliament last and this year are playing an important role. They are placing a huge burden on public finances and future generations, but at the same time they are helping people's wallets in this period," said Horvath.
According to the Finance Ministry, inflation has already peaked and will reach 10.6 percent on average this year. Government measures led to household energy prices rising only very slightly in January when compared to developments on commodity markets. Agricultural commodity prices are already declining or have stabilised, which is reflected in a slowdown in food price increases. Fuel prices are also declining. Inflation in Slovakia will thus reach single digits in the second half of this year and will approach 6 percent at the end of 2023, the ministry forecast.
"There's also some bad news, and it concerns developments over the next few years. We've had to moderate our expectations for economic growth in the near future. It looks like the recovery in the world economy is progressing more slowly, the moods in the global economy aren't good," Horvath remarked.
In 2024, economic growth will accelerate only slightly to 1.3 percent. The recovery in the purchasing power of the population will have a positive impact, with real salary growth returning above 2 percent. The peak in the drawing of EU funds in 2024 should be replaced by a stronger implementation of recovery plan projects. "On the other hand, the recovery of public finances in particular will dampen activity. The consolidation mix on the revenue and expenditure part of 1.1 percent of GDP will cause real GDP growth to slow by 0.8 percentage points in 2024," the IFP announced. In 2025, economic growth is set to accelerate to 3.1 percent.
Inflation is forecast to slow down to 4.8 percent next year and return to close to 2 percent in the medium term. "Food price inflation will normalise, while growth in the prices of goods and, with a delay, services will also slow down. On the other hand, an increase in energy prices is to be expected," the institute warned.
IFP assumes that the price of power electricity will develop in a similar way to this year, given the government's memorandum with power utility Slovenske elektrarne. However, an increase in charges should raise the end electricity price by 20 percent. IFP believes that gas prices would almost double next year if the switch to market-corresponding prices were made immediately. At the same time, heating prices would rise with them. However, the institute expects further government measures to be taken to prevent price rises.
Source: TASR
