Slovak Central Bank Sees GDP Slowing Next Year on Weak Demand

Slovakia’s central bank expects economic growth in the euro-region member to slow next year as government austerity measures damp consumption.

The bank left its forecast for 2011 growth of 3 percent unchanged from its previous estimate in September, Governor Jozef Makuch said in Bratislava, Slovakia today. The estimate for this year was lowered to 4.2 percent from 4.3 percent. Gross domestic product in 2012 is seen at 4 percent.

“The development of the economy will be influenced mainly by the government’s austerity measures and the level of foreign demand,” Makuch told a press conference.

Prime Minister Iveta Radicova’s Cabinet, which came to power in July, wants to lower the budget gap to 4.9 percent of GDP next year from 7.8 percent this year through spending cuts and increases in indirect taxes. The measures will constrain domestic demand, leaving the east European country dependent on a recovery in foreign demand, mainly from the euro area.

Even as the austerity package is set to cool household spending, inflation will rise because of higher value-added and excise taxes, as well as rising commodity prices, the central bank predicts.

It revised its forecast for average inflation in 2011 to 3.9 percent from 3.8 percent projected three months earlier. Inflation will accelerate from an average 0.7 percent this year, according to the forecast. Average inflation is projected to slow to 2.6 percent in 2012.

To contact the reporter on this story: Radoslav Tomek in Bratislava at rtomek@bloomberg.net.

To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net.

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