Population 5.452 million
GDP 91.186 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
4.2 |
3.4 |
2.7 |
1.7 |
|
Inflation (yearly average) (%)
|
1.0 |
3.9 |
3.6 |
2.9 |
|
Budget balance (% GDP)
|
-7.7 |
-4.8 |
-4.8 |
-3.0 |
|
Current account balance (% GDP)
|
-3.8 |
-0.4 |
0.7 |
0.6 |
|
Public debt (% GDP)
|
41.1 |
43.3 |
46.3 |
48.2 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- EU membership has accelerated the implementation of reforms
- Eurozone membership
- European automotive re-export platform
- Attractive business environment
WEAKNESSES
- Vulnerability to external shocks
- Burden of external debt
- High unemployment
Risk assessment
The shock from the rest of the eurozone will affect activity
Slovakia’s growth held up well in 2012 compared with that of its European neighbours.The industrial sector supported the economy (12%), particularly consumer electronics and especially the automotives sector which represents 39% of GDP. With 850,000 vehicles produced in 2012 (+40%) for 5.4 million inhabitants, Slovakia is the European leader. Three big groups share the Slovak market: PSA, Volkswagen and Kia. Slovakia benefits from an attractive offer for investors. Slovak labour is skilled and cheap (the average wage is 800 euros a month). For example, The fixed costs linked to the production of a car are 500 euros less in Slovakia than in France. However, considering the difficulties of the automotive sector, Slovak production may slow in 2013. Several big groups have announced impending cuts in production. The German brand, for example, is making vehicles for the main emerging countries whose growth is slowing (China, India, Brazil). The automotive sector directly employs 72,000 people and the unemployment rate is approaching 13.5% and is set to rise in 2013. Meanwhile, on 1 January 2013, income tax has become progressive and corporation tax (+4 points) has been risen as a measure to reduce the public deficit. The Slovak economy is expected to slow sharply. Consumption will put a strain on growth due to the government’s budget adjustment policies. Exports, very largely directed towards the European Union, particularly towards Germany, will also undergo a sharp adjustment. Exports represent 90% of GDP, making Slovakia the most open country in the Union. The slowdown in Western European consumption, particularly in Germany, is expected to affect business investment. However, Slovak businesses have the highest profitability levels in the EU which means they will not have to make sharp spending cuts. Consumption of Slovak households, worried by a turbulent regional context, will remain sluggish. Besides, in a context of energy price stabilisation and an economic slowdown, inflation is likely to be under 3% in 2013.
The government is prioritising adjustment of the budget deficit
Controlled public finances and contained inflation enabled Slovakia to join the Eurozone in 2009. However, public debt has significantly increased since then and is expected to reach nearly 50% of GDP in 2013, a level which remains reasonable compared to the eurozone average. However, the new centre-left government has,undertaken to cut the budget deficit to below the 3% threshold between now and 2013 by introducing a progressive tax system and increasing corporation tax. Meanwhile, the country has been able to take advantage of investor confidence and issued 12-year treasury bonds for $1.25bn in 2012 in order to benefit from the very low interest rates. Foreign exchange reserves thus amount to 5 billion euros (+33.5%). This increase largely covers the expected reduction in foreign direct investments in 2013, particularly against a background of overproduction in the motor industry. External debt, particularly bank debt, is also high. Though Slovak banks have high capitalisation and liquidity ratios, the sector is very concentrated and dominated by West European players (mainly Austrian and Italian). Given the weakness of certain eurozone banks, credit to the Slovak private sector could slow - a downturn which could affect companies’ debt refinancing.
A more stable political environment
The March 2011 legislative elections enabled Robert Fico’s social democrats to obtain an absolute parliamentary majority (83 seats out of 150). Robert Fico had been the prime minister between 2006 and 2010. During this period he successfully engineered Slovakia’s entry into the Schengen area (2007) and then the adoption of the euro (2009). This event, which is a first since the country’s independence in 1993, should enable the government to complete its budgetary adjustment measures without risk of political deadlock, especially since the next legislative elections will not place until June 2016.
