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Macroeconomic News

Slovak finmin cuts 2009 FDI fcast to 0.6 pct/GDP

Fri, 27th Mar 2009 12:08

1 BRATISLAVA, March 27 (Reuters) - Foreign direct investment into euro zon
e newcomer Slovakia will be much lower this year than originally expected as the global financial crisis strains capital flows, the Slovak Finance Ministry said on Friday.

The ministry's Institute of Financial Policy, its research body, said it saw FDI inflows at 0.6 percent of gross domestic product in 2009, compared with the 2.7 percent expected before the financial crisis.

Also on Friday, Moody's ratings agency said it had cut the outlook on Slovakia's A1 government bond ratings to stable from positive, citing the impact of the the financial crisis.

But the institute said Slovakia should still be among the central and eastern European countries less affected by the global financial crisis, thanks to its membership in the single currency area and relatively sound macroeconomic fundamentals.

It said in a paper all central and eastern European states would see lower FDI inflows, which, combined with weaker foreign demand, would curb economic growth. But it said impact would depend on economic fundamentals and foreign exchange regimes.

'Slovakia's position is relatively stable in terms of the impact of low capital inflow,' the institute said.

Loans are safely covered by domestic deposits, the governments have in the past few years cut fiscal deficits and the current account gap has been sustainable, it added.

'Also thanks to euro zone entry at the beginning of 2009, the country is perceived as one of the least risky in the CEE region.'

Younger European Union members have for years benefitted from investment inflows which have fuelled convergence with richer members of the bloc amid their transition from centrally-planned communist economies.

But escalating financial crisis, which has restrained interbank liquidity and brought tougher lending standards, has curbed international capital flows and put many European emerging countries under financing pressure.

(Reporting by Peter Laca; editing by Patrick Graham) Keywords: FINANCIAL SLOVAKIA/FDI

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