2012-11-15 00:36:54 - Slovakia Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com
We continue to expect Slovakia´s economy to expand by 2.0% in real terms in 2012, with growth largely driven by export performance. Household and government consumption are expected to remain weak due to austerity conditions and structural unemployment. Risks of fiscal slippage remain high, particularly given the election of a Smer-SD majority government. While we believe that the Robert Fico-led administration will broadly respect its fiscal commitments to the eurozone, we expect Slovakia to struggle to hit its targets on its current trajectory. We therefore forecast a fiscal deficit of 4.6% of GDP in 2012, before this narrows to 3.3% in 2013.
Major Forecast Changes
We have revised up our forecasts for Slovakia´s current account balance in 2012 and 2013 on
the back of robust exports coupled with a more pronounced slowdown in exports. We now expect Slovakia´s current account to move into surplus this year, coming in at 1.7% of GDP, from a previous forecast of -0.6%, and 1.5% of GDP in 2013, from a previous forecast of 0.8%. Our revised forecasts are predicated mainly on expectations of a stronger trade balance, given that leading indicators point to continued export growth in the second half of the year, with industrial orders growing 15.6% y-o-y in May, and industrial production 10.8% in the same period. We have revised up our real GDP growth projections for 2012, which we now forecast at 2.0%. However, drilling down into the breakdown of expenditure confirms our view that net exports now remains the sole remaining driver of growth for Slovakia, with household and government consumption flat.
Key Risks To Outlook
Downside Risk To Growth Outlook: Slovakia´s heavy dependence on the external sector for its economic growth presents a key downside risk to our forecasts. Indeed, a significant slowdown in external demand, in particular from Germany, would impact heavily on Slovakia´s export-led economic recovery.
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