major macro economic indicators
|2017||2018||2019 (e)||2020 (f)|
|GDP growth (%)||3.0||4.0||2.8||-6.9|
|Inflation (yearly average, %)||1.4||2.5||2.8||2.5|
|Budget balance (% GDP)||-1.0||-1.1||-0.7||-0.6|
|Current account balance (% GDP)||-1.8||-1.6||-2.4||-2.6|
|Public debt (% GDP)||51.3||49.4||46.9||46.4|
(e): Estimate. (f): Forecast.
- Eurozone membership
- Production platform for European automotive and electronics industry
- Satisfactory public and external accounts
- Robust financial system dominated by foreign groups
- Small and open economy dependent on European investment and markets
- Strong sectorial concentration of exports: automotive and consumer electronics
- Regional development inequalities/the east lagging behind (infrastructure and training)
- Insufficient research and development/export relying on assembly activities (low value-added)
- Shortage of skilled labour and high long-term unemployment
Growth weakens further
Growth is expected to slightly weaken in 2020 after a slowdown already perceived in 2019. Household consumption remains the main driving force of the economy thanks the favourable labour market. Nevertheless, an expected slowdown in employment growth may dampen robust growth in real household disposable income. In the first half of 2019, the unemployment rate dropped to 5.4% – a record low for Slovakia. Despite improvements in this regard, especially when compared with much higher unemployment in 2013, there are still strong regional differences between the East and the West of Slovakia: the latter (including the capital city of Bratislava) enjoys a strong concentration of foreign and domestic companies that makes unemployment much lower. Despite those regional differences, labour shortages have been sharply increasing in Slovakia, especially in manufacturing. A lack of adequate labour force has been pushing wages upwards The minimum wage and state salaries have been increased in several steps likewise other wage components including wage premiums for night, weekend and public holiday work, which were raised for the second time in May 2019.
The labour market is tight and rising wages pose a risk for further investment. Moreover, investment activity is likely to normalise to more moderate growth rates as capacity-building in the automotive sector comes to an end. The latest investment of Jaguar Land Rover, a plant that opened in October 2018, added in the first phase an additional 150,000 cars to total Slovak production with already a combined production volume of 1 million cars of other manufacturers (VW, KIA Motors, PSA). Nevertheless, VW announced job cuts and perspectives for the automotive sector have become less favourable.
Exports are expected to suffer from Slovakia’s exposition to the automotive sector and its high economic openness amid current slower global trade dynamics. Weaker GDP growth will be mainly a result of slower net exports. Foreign trade dynamics will be subject to prospects of Slovakia’s key trading partners.
Satisfactory public and external accounts
The government deficit reached 1.1% of GDP in 2018 and then improved to an estimated 0.7% in 2019 and 0.6% in 2020. Although the government had aimed for a balanced budget in both 2019 and 2020, it has recently revised its target facing lower GDP growth expectations and signs of trade with the Eurozone weakening. The government spending is likely to increase ahead of general elections scheduled for 2020. New social packages are already in preparation, including a decrease of certain taxes, an increase in parental benefits, a contribution to school-items, as well as support for business R&D. It is unlikely that the new re-elected government would be in a rush to balance the budget whereas the current opposition parties have declared that if they were to be elected, balancing the budget would not be their top priority.
The current account deficit has widened reflecting slower growth of exports amid still solid imports. In August 2019, the trade surplus was the lowest since September 2011. It was affected by the economic slowdown in Western Europe, especially a downturn of German industry to which Slovakia is strongly linked. Exports are expected to rebound with the planned production of new car models but weaker demand and external risks makes a significant acceleration of exports unlikely.
After the March 2016 elections, then-Prime Minister Robert Fico and his centre-left party, Smer-SD (European Socialist Party member), lost their absolute majority in Parliament and had to form an alliance with the conservative National Party and the centre-right Most (Bridge) Party. Despite numerous crises, the coalition remained in power and it is likely to complete its four-year term, which will conclude in February 2020. In March 2018, Robert Fico resigned as Prime Minister after mass protests demanding governmental resignations after the murder of an investigative journalist, Jan Kuciak who worked on an investigation focused on an Italian crime syndicate, alleging that the group had ties with people connected with the Slovak government.
According to the latest opinion polls in Slovakia, the ruling Smer-SD retains the support of around 20% of the public. Then, the PS-Spolu (Progressive Slovakia and Together – Civic Democracy) partnership is polling in second place, with 15% support. PS gained popularity when its former vice-chairwoman was elected as Slovakia's first female President in June 2019. PS-Spolu could form the next government in coalition.
Last update: May 2020