SLOVAKIA BEGINS TO RECOGNIZE NEGATIVE GROWTH 2009

UNCLAS BRATISLAVA 000146 SENSITIVE SIPDIS STATE FOR EUR/CE L. LOCHMAN AND K. ERTAS STATE PLEASE PASS TO TREASURY FOR L. NORTON E.O. 12958: N/A TAGS: EFIN ECON LO SUBJECT: SLOVAKIA BEGINS TO RECOGNIZE NEGATIVE GROWTH 2009 REF: BRATISLAVA 133 ¶1. (SBU) Recent conversations with board members of the National Bank of Slovakia (NBS) indicate that the central bank's view of the economy is steadily worsening. In a meeting with EUR Deputy Assistant Secretary Judy Garber on 12 March, NBS Governor Ivan Sramko indicated that the current growth estimate for Slovakia, at 2.6 percent of GDP, will soon be lowered to something closer in line with, and possibly lower than, the European Central Bank's estimate of 1.4 percent. This estimate would still leave Slovakia as one of a very few OECD members with positive growth. ¶2. (SBU) In a subsequent and less formal meeting, a subordinate member of the NBS board told us that the end of March estimate will be below zero. This estimate aligns with what we are hearing from independent economists and even some GoS economists. However, we believe it is distinctly possible that the Fico Government will suppress the lower estimate until after the second-round Presidential elections on April 4. ¶3. (SBU) The budget implications of a 2.6 percent downward adjustment will be dramatic, and they help explain the GoS's hesitation to take on more meaningful fiscal stimulus (reftel). The current package of EUR 330 million represents less than 0.5 percent of GDP, and most of that is merely a reallocation of the planned budget for 2009. While the GoS is talking publicly about going slightly over the Maastricht deficit ceiling of 3 percent, most analysts here say that it is already heading for something over 4 percent, largely because of a sharp drop in VAT revenues (down 40 percent in January year-on-year). With a significantly lower growth estimate, a 4 percent deficit begins to look unrealistically optimistic. EDDINS