Recovery closely watched by inflation (February 2022)

Omicron, inflation and component shortages will delay the full recovery of the Slovak economy, which is projected to grow by 3.5 per cent in 2022. The economy will stagnate at the beginning of the year due to temporary staff shortages, but high inflation will also weigh in by decreasing real wages and household consumption. Economic activity will revive after the pandemic eases in the second quarter, with job creation speeding up. Resources from the Recovery and Resilience Plan (RRP) will be responsible for the half of this year's output growth, provided that all necessary reforms are implemented. We expect GDP to grow by 5.3 per cent next year, partly owing to higher EU funds absorption at the end of the current programming period. Given the uncertainty related to the economic consequences of the omicron variant, the forecast also includes an alternative scenario with a more sizeable impact of the fourth wave. Energy prices too feed into the uncertainty, but we expect them to decrease somewhat and stabilise during the summer months.