(Repeats story from late Wednesday)
By Peter Laca
VIENNA, Oct 22 (Reuters) - Slovakia's economy will slow more than expected
next year because of the global financial crisis, but the future euro zone
member should still expand by at least 5 percent, central bank Vice-Governor
Martin Barto said on Wednesday.
Slovak consumer prices should not rise sharply after euro zone entry in
2009, and the central bank has so far not discussed revisions of its inflation
goals, Barto also said.
The National Bank of Slovakia (NBS) is now working on a regular update of
its economic forecasts, which Barto said would be probably published together
with those from other members of the single currency bloc early in December.
Speaking at the Reuters Central European Investment Summit in Vienna, Barto
said the 2009 growth forecast would come down from the bank's current prediction
of 6.6 percent.
"I would expect that the proposal would be somewhere between 5 and 5 1/2
percent of growth for next year," Barto said.
"This is my personal estimate based on the first forecasts of euro zone
countries, European Union countries, neighbouring countries, which are our main
trading partners."
Growth of 7.6 percent is expected in 2008.
Slovakia has been largely shielded from the full brunt of the financial
crisis. But the small and open economy, heavily dependent on exports of cars and
electronics goods, could see an indirect impact if demand in its main trading
partners slows and tighter financing prompts consumers to curtail spending.
Apart from the automobile and electronics sectors, Barto said the Slovak
construction sector may also be hit because of a higher cost of funding.
Governments and central banks across Europe have slashed growth forecasts,
but Slovakia is expected to remain one of the fastest growing economies in the
EU, and Barto said euro zone entry could add up to 0.5 percentage points of
growth per year to the economy and help attract new investments.
"With the euro zone membership, Slovakia might escape a drastic decline in
growth," he said.
Lower GDP growth might also undercut 2009 budget revenues.
The fiscal plan is based on economic growth of 6.5 percent, but Barto said
the government had enough tools to react if that were the case and he expected
the cabinet to cut spending if state revenues fall short of projections.
He also dismissed suggestions of a few analysts that the credit crisis might
somehow endanger Slovakia's euro zone entry.
"There is no doubt about Slovakia's euro zone membership as of Jan. 1, 2009.
There is nothing that could prevent Slovakia from joining," Barto said.
LIMITED INFLATION IMPACT
Euro zone entry will lock Slovakia in to the area's lower borrowing costs.
Its main interest rate of 4.25 percent is 50 basis points above the European
Central Bank's after Bratislava did not follow the coordinated rate cuts by the
ECB and other major central banks earlier this month.
Slovak interest rates will have to fall to match the euro zone's when it
becomes the 16th member of the bloc. Barto said the NBS will debate various
options for aligning the rates, including a cut all at once or in gradual steps,
probably at the monthly monetary policy meeting.
The impact of lower interest rates on the Slovak economy will depend on the
actual lending policies of banks operating there, as they may tighten what has
been a relaxed approach and ask for higher risk premium.
"In the end, the situation might be that monetary conditions will not change
so much," he said.
Opinion polls show many Slovaks worry euro zone entry will bring higher
inflation, similar to a jump in price growth in the first ex-communist euro
switch Slovenia after its entry in 2007.
But Barto said the NBS did not expect a spike.
"In our discussions so far, there is not a discussion of a
revision of inflation figures," he said. "We have no signals about the
possibility of stepping over these targets... I would say we are quite
optimistic about inflation."
The NBS now targets annual inflation calculated under EU methodology of 4.0
percent for the end of 2008 and 2.8 percent for December next year.
Barto said that despite plans by Slovak Prime Minister Robert Fico to boost
welfare spending, he believed the cabinet would continue reducing the public
deficit.
"I think he is willing to fulfil the budget deficit figure of 1.7 percent
(of GDP) for next year," he said. "Also, I think he understands quite well that
inflation is now mostly in hands of the government's fiscal policy, I think he
is quite well aware of this fact and feels the responsibility of this."
(Editing by Toby Chopra)
