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Monday, December 4, 2023

Slovakia will have the highest deficits in the EU

The outbreak of a really severe crisis in Slovakia during the next two years is highly unlikely. Despite all the current problems, the European Commission expects an increase in the economic performance of the Slovak economy. The production of local enterprises will be pulled by the growth of orders from abroad, the stabilization of energy prices will also help, and falling inflation will result in a renewed growth in household consumption. The economy will also be affected by state contracts or the implementation of projects from the recovery plan or euro funds.

“Slovak GDP is expected to grow by 1.3 percent in 2023, supported by strong exports and investments, and by 1.7 percent in 2024, when consumption starts to recover from the energy price shock,” states the European Commission in its autumn forecast. . According to its experts, Slovakia’s GDP will grow by 2.5 percent in 2025. Residents can expect a relatively calm period of economic growth. The problem of high inflation will also end in the next two years. The European Commission expects an average price increase of 10.8 percent this year, 5.2 percent next year, and 3.0 percent in 2025.

End of subsidies
Next year’s inflation will probably be slightly lower. The European Commission is counting on the end of aid with high energy prices. The new government, on the contrary, assures that it will contribute to citizens in 2024 as well and will not let them pay market prices. It is estimated that this year alone, Slovakia will spend more than two billion euros to solve the problem of expensive energy. The question is how much money the country will be able to afford to spend in 2024. Current aid is largely financed by debt. Financial markets may not tolerate such an irresponsible approach in the coming year.

The problem of high deficits

This year, the European Commission forecasts a deficit of Slovak public finances at the level of 5.7 percent of GDP. This is the fourth worst result within the twenty-seven-member European Union. In 2024, the deficit should reach 6.5 percent of GDP, and in 2025, up to 6.8 percent of GDP. At the same time, during the next two years, Slovakia is to be the worst performing country in the entire European Union. It is questionable how the financial markets will react to such a priority and whether they will lend the new government enough money for the promised increase in social standards.

“It is assumed that in 2024 the deficit of public finances will further increase to 6.5 percent of GDP, despite the easing of inflationary pressures and the cancellation of energy-related measures,” states the European Commission. Already approved changes in the pension system will cause problems. In the following years, they will sharply increase the expenses of the state budget. In addition, the new government plans further growth through the introduction of a full-fledged thirteenth pension. “Delayed deliveries of military equipment and increased defense spending will also contribute to deepening the deficit. As most of the newly adopted measures are expected to be permanent, the budget deficit should remain high, at 6.8 percent of GDP in 2025,” the European Commission adds.

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