CBM lowers growth projections, additional measures may be needed to achieve deficit targets
The Central Bank has lowered its projections for this year's GDP growth in real terms to 1.4%. Projections announced in April were of 1.6%.
The CBM is also projecting a recovery to 2.2% next year.
The Bank says in its Quarterly Review, published this morning, that private consumption and investment are expected to be the main engines of growth over the projection horizon. Net exports are expected to contribute more moderately than domestic demand to the expansion, as import growth is projected to broadly match that of exports. This largely reflects the impact of weak foreign demand on exports in 2012 and the recovery in domestically induced imports in 2013, as private consumption and
Average HICP inflation is projected to increase from 2.5% in 2011, to 2.7% in 2012, before falling to 1.9%next
Risks to the growth projections are judged to be on the downside, particularly for 2012, largely as a result of uncertainty surrounding the sovereign debt crisis in the euro area.
The Central Bank notes that according to the government’s latest Update of the Stability Programme, the general government deficit is expected to narrow further this year and the following year.
"However, although quarterly budgetary data may be volatile and one-off factors played a part, the widening of the deficit during the first quarter of the year poses risks to the achievement of this aim. Additional fiscal consolidation measures may need to be taken to ensure that the deficit target for 2012 is achieved. A more ambitious fiscal consolidation effort would also help place the debt ratio on a downward path," it says.
"Meanwhile, it remains important to increase productivity and to enhance the local economy’s growth potential. This requires ongoing investment in infrastructure, education and manpower training. At the same time, banks should continue to keep adequate levels of capital and liquidity, a diverse mix of funding sources and a prudent provisioning policy. This will enable the financial sector to keep channelling savings into productive investment."