(Updates with Almunia comments)
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.
"The European Commission forecasts confirm we are able to
meet the inflation criterion in a sustainable way in the
future," Slovak Finance Minister Jan Pociatek told reporters,
echoing comments from central bank board member Peter Sevcovic.
The Slovak crown hit an all-time high of 32.200 to the euro
<EURSKK=> on Monday, firming 0.6 percent, above the previous
all-time high of 32.250 seen in March.
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 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 next Jan. 1, following the example of
Slovenia, Cyprus and Malta, which, like it, joined the EU in
2004.
EU finance ministers will take a final decision in June.
"Favourable base effects at the end of 2008 should
ensure some moderation in the inflation rate," the Commission
said.
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 its 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."
Inflation trends are not easy to predict and the Commission
is keen to avoid another embarrassment after it deemed in 2006
that Slovenia's inflation was sustainably low. Once Slovenia had
adopted the euro last year its inflation rose to a record high.
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)
