The Slovak economy is heading for a recession due to the coronavirus pandemic and will then recover strongly
- We expect the Slovak economy to contract this year by between 4.5% and 9.4%
- The recession may temporarily put between around 75,000 and 130,000 people in Slovakia out of work
- The uncertainty and volatility necessitate aggressive preventive measures and cooperation between central banks, governments and international institutions
- The more effective and substantial the measures are, the sooner economic recovery will come. At present, we expect it to begin in the last quarter of 2020. The risks to the outlook are tilted rather to the downside
(Please note that all the presented scenarios were modelled without taking into account measures to be announced by the Slovak Government)
We expect that Slovakia’s open, export-oriented economy will this year experience a temporary contraction of almost 5%, which if the socio-economic repercussions of the coronavirus (COVID-19) pandemic become more severe, could rise as high as 10%.
In this extremely rapidly evolving situation in both Slovakia and abroad, the March Medium-Term Forecast (MTF-2020Q1) of Národná banka Slovenska presents three potential scenarios instead of the standard projections. These scenarios assume a two-month downturn that is most pronounced in the domestic services sector; they differ mainly in terms of their assumptions for the decline in demand from Slovakia’s trading partners. The current situation in financial markets and trading partners suggests that the risks to the economic outlook are tilted to the downside.
“These are very ugly figures. We can see, however, light at the end of the tunnel. The Slovak economy will pull through, albeit with some cuts and bruises. What matters is that the crisis period is temporary and that our recovery should be just as dramatic as its arrival,” said NBS Governor Peter Kažimír.
“Central banks are already playing their part in mitigating the effects. We all want that tunnel to be as short as possible and to emerge from it as soon as possible,” he added. “Within the past two weeks, we at the European Central Bank have adopted a series of essential measures aimed at reducing stress and panic, while at the same time protecting financial stability and thus people. It is important to act firmly and not to waver.”
The economy is expected to begin recovering by the end of this year, and 2021 should see labour, production and consumption regain the ground lost during the crisis. We expect the economy to return to its pre-crisis level during the course of next year.
Národná banka Slovenska has already adopted a series of exceptional measures to ensure the smooth operation of payment systems and financial stability in Slovakia. Easing tension, stress and uncertainty in this way is essential for better managing the current crisis. Through these and future measures, NBS seeks to ensure that banks and other financial institutions continue to ‘grease’ the economy by lending to households, firms and governments under terms that would apply in (relatively) normal circumstances, as if there were no virus crisis.
National Bank of Slovakia
Imricha Karvasa 1, 813 25 Bratislava, Slovak Republic
Tel.: +421-2-5787 2142, +421-2-5865 2142, +421-2-5787 2169, +421-2-5865 2169
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