Boston, MA -- (SBWire) -- 08/29/2013 --Prime Minister Robert Fico will continue to benefit from his party's outright majority in parliament, which has eased policy formation and implementation. While this is positive for political stability in the short term, it does not provide much space for consensus politics, with Fico's tax and welfare reforms likely to keep investors cautious. The slowdown in economic growth will be sharper than originally expected in 2013, as exports to the EU stagnated in the first half of the year.
The government will continue with its fiscal consolidation plan, and though we do not expect it to meet its short-term targets without new measures, a shrinking deficit will buoy market sentiment.
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Major Forecast Changes
We have lowered our forecast for GDP growth in 2013 to 0.6%, from a previous 1.2%, as domestic demand remains stagnant and regional headwinds hit export growth to key EU markets.
Despite a difficult external climate, we expect the current account surplus to grow to 2.9% of GDP in 2013, up from our previous forecast of 2.1%, as import growth falls faster than exports on weak domestic demand.
After coming in at 52.1% of GDP in 2012, we forecast government debt will hit 54.9% of GDP by end-2013, and rise to 56.7% in 2015.
Risks To Outlook
On balance, we believe the risks to our short-term growth targets are still tilted to the downside, given ongoing uncertainty over the regional economy and the over-dependence on exports to a few key EU markets.
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