Slovakia to lead region in fiscal management, forecasts Brussels

By bne IntelliNews May 6, 2013

bne -

Of all the Visegrad Four struggling to push their deficits below the EU's magic threshold of 3% of GDP, Slovakia looked the least likely to achieve it 12 months ago. However, the European Commission said it expects the country to hit the target as early as this year.

The EU executive predicts the gap will match the 3% ceiling in 2013, before widening to 3.1% in 2014, it said in its latest economic forecast report released on May 3. Slovakia's economic growth forecast for 2013 was cut by 10 basis points to 1%, while public debt is predicted to increase to 54.6% of GDP, and then rise to 56.7% in 2014, the commission added.

However, despite the struggles of Prime Minister Robert Fico's government to meet budget revenue targets due to slowing growth, the commission joined Moody's in its recent opinion that the 2013 deficit target is "within reach." Meanwhile, Slovakia's Visegrad peers are struggling.

Hungary has angrily claimed the commission is biased as it said it expects the country to remain in the EU's excessive debt procedure (EDP), despite squeezing its deficit from 4.3% to just 1.9% in 2012. However, the commission is clearly still wary of Budapest's short term and one off maneuvers - and especially their likely effects on the sluggish economy - and says it expects the deficit to move back out to 3% in 2013, and then to 3.3% in 2014.

Poland was meant to be the star of the region, but has been hit hard as the crisis finally caught up with it in the second half of 2013. That has seen Warsaw take its eye off the austerity ball to seek ways to offer added stimulus to the economy, and it also - unexpectedly - failed to exit EDP in 2012 with the deficit stuck at 3.9%, rather than the 3.5% target. The commission doesn't expect it to budge from that result in 2013, while the gap will expand to 4.1% in 2014, it expects.

The harsh austerity programme that has been running for several years in the Czech Republic has been criticized for extending the country's recession, and the government has recently agreed to back off on plans to pare the deficit back ever further. However, the deficit is still expected to duck below the threshold at 2.9% in 2013, before moving out to 3% next year.

At the start of 2012, Slovakia - by far the smallest in Visegrad, and the only member of the blighted Eurozone - was facing snap elections at which the populist Fico was virtually guaranteed to win his way back into office, none of which boded well for fiscal management. Despite better than expected economic growth in the first three quarters of the year, the government has struggled to raise revenue from the range of tax rises it implemented, offering a greater challenge to meeting targets already described as overly-ambitious by most.

However, Bratislava managed to cut the budget gap to 4.3% in 2012, from 5.1% the previous year. It has retained a target of 2.9% of GDP in 2013, despite the fact that the strong economic performance of last year has slowed dramatically in recent months.

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