(Repeats story published late on Monday)
By Marcin Grajewski
BRUSSELS, April 28 (Reuters) - Slovak inflation will ease in 2009 after
hitting a peak this year, the European Union forecast on Monday, cementing
expections in the country that it will be allowed to join the euro zone next
January.
In a twice-yearly forecast, the European Union executive said Slovakia's
annual inflation would fall to 3.2 percent in 2009 on the EU measure (HICP),
after peaking at 3.8 percent in 2008. This compared with 1.9 percent last year.
The forecast did not include the 12-month average inflation rate which is
used to assess whether countries are fit to adopt the euro. But it offered some
reassurance about Slovakia's ability to keep price growth in check.
"We did not come here with champagne and fireworks, but the European
Commission's forecasts are a significant step towards meeting the goal of
adopting the euro," Slovakia's leftist Prime Minister Robert Fico told a news
conference.
The Slovak crown firmed 0.6 percent after the report to an all-time high of
32.200 to the euro <EURSKK=>, above the previous all-time high of 32.250 seen in
March. It later dipped to 32.245 at 1509 GMT.
Fico said he would aim for the strongest possible switchover exchange rate.
"My personal view is that the rate should be as favourable for the people as
possible, that people would pay as few crowns for a euro as possible," he said.
He said he expected the rate to be set in the first week of July. The market
has so far expected 32.50, according to a Reuters poll.
EU Monetary Affairs Commissioner Joaquin Almunia, who will draft the report
on Slovakia, declined to comment on Slovakia's euro bid but reiterated the
country of 5.4 million people should cut its budget deficit more, considering
its fast economic growth.
"We consider among other things, the fiscal consolidation should be more
ambitious in Slovakia to help the authorities fight inflation more
successfully," he told a news conference.
Analysts and politicians have said Slovakia's uncertain inflation outlook is
its only obstacle to adopting the currency now shared by 15 nations.
The Commission will recommend on May 7 whether Slovakia should adopt the
euro on Jan. 1, following Slovenia, Cyprus and Malta, which, like it, joined the
EU in 2004. EU finance ministers will take a final decision in June.
STRONG GROWTH
The Commission said euro zone inflation was expected to leap to 3.2 percent
before slowing to 2.2 percent in 2009.
European Central Bank sources have previously said the ECB is worried about
Slovakia's inflation outlook. The ECB will also report on Slovakia's euro
readiness on May 7, but its findings will not be binding under EU rules.
At the moment Slovakia meets all the euro zone entry criteria on inflation,
the budget deficit, public debt, long-term interest rates and currency
stability.
Slovakia's 12-month average inflation was 2.2 percent in March, comfortably
below the permitted ceiling of 3.2 percent.
Under EU rules, a country wanting to join the euro must have inflation no
higher than 1.5 percent percentage points above the average of the three EU
members with the lowest inflation rates.
But the EU treaty also says the criterion has to be met in a sustainable
way.
"It's broadly positive, although the forecasts don't completely rule out a
surprise decision," said Dresdner Kleinwort analyst Raffaella Tenconi. "I'll
stick with my view (that there is a) 70 percent chance Slovakia is in, and 30
percent that they aren't."
The Commission also forecast Slovakia would have the highest economic growth
rate of the EU's 27 nations, with gross domestic product expected to expand 7.0
percent in 2008 and 6.2 percent in 2009, compared with 10.4 percent last year.
Despite a strong appreciation of the crown, Slovak exports are expected to
outpace imports, it said, although economic growth will be driven mainly by
domestic demand.
(Additional reporting by Peter Laca and Martin Santa in Bratislava)
(Editing by Gerrard Raven)
