(Updates with Fico comments, crown)
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)
