The growth of the Slovak and European economies will be slower this year due to the conflict in Iran, but they should not fall into recession. The Eurozone should grow by 0.9%, Slovakia by only 0.5%. Inflation in the Eurozone could rise above 4% during the year, in Slovakia maybe even above 6%. Analysts of VÚB banka and its parent Intesa Sanpaolo estimate this in current forecasts.
“Even if the conflict ended right now, its effects would probably last for several months. Only serious damage to the world’s largest LNG terminal in Qatar alone will require repairs that they will last three to five years. Stopped oil drilling, liquefaction of natural gas and disrupted shipping also cannot be fully restored in just a few daysit’s more like weeks or months.
Stranded ships too cannot in the short term erase the decline in global stocks of important raw materials, even if they immediately continued their journey from the end of February,” explained the chief economist of VÚB bank Zdenko Štefanides.
Intesa Sanpaolo Analytics developed three possible scenarios for the development of the conflict, in the middle one they assume its end in May. Following this, they lowered the forecast for gross domestic product (GDP) growth in the eurozone this year by 0.3 percentage points (pb) to 0.9%.
According to analysts, current world developments will affect the Slovak economy even more significantly. It’s the same highly dependent on international trade and foreign demand, it is also highly energy intensive. “Therefore, we are reducing the local GDP growth forecast more than the entire eurozone, from the previous 1.1 to 0.5%. The National Bank of Slovakia also came up with the same estimate in the middle scenario at the end of March,” Stefanides recalled.
According to analysts, consumer inflation in the eurozone should accelerate to 3.3% on average for the whole year, with a peak of 4.2% in October. Higher prices of energy commodities because they are reflected in costs not only in transport, but also in the prices of food and other goods and services.
In Slovakia, fuel prices have so far grown only minimally, however, that should change in the coming months. “Propulsion materials cannot be sold without margins indefinitely, the last oil tanker from the Persian Gulf has already arrived in Europe, and supplies will only decrease. In addition, more expensive fertilizers will put pressure on food prices: both with higher costs and lower yields per hectare. In turn, more expensive gas will suppress costs in many industries, and the lack of sulfur and helium can also complicate production in electrical engineering. At the same time, natural gas reserves in the EU are currently at their annual minimum,” Štefanides zoomed in.
Analysts of VÚB banka therefore expect that inflation in Slovakia will increase to the level of 6% or even higher by the end of the year. However, companies’ incomes and, consequently, the possibility of increasing employee salaries tend to react to inflationary shocks only with a delay.
“The average wage in Slovakia will soon most likely see a decrease after adjusting for inflation. This means lower purchasing power for goods and services, which will add to the previously expected slight decrease in household consumption this year,” added the economist.
