Country Report Slovakia December 2008

Outlook for 2009-10

• The Economist Intelligence Unit's central forecast is that the government will survive throughout 2009-10. However, tensions between the ruling parties pose a risk that the coalition will collapse during the forecast period.
• If the government were to break up, an early election would be the most likely outcome. This could allow Direction-Social Democracy (Smer-SD), the party of the prime minister, Robert Fico, to strengthen its position further.
• Slovakia will adopt the euro in January 2009. In the short term the government is likely to focus on measures to alleviate the impact of the economic slowdown.
• Most of the previous government's free-market reforms are likely to remain in place. However, a sharper economic slowdown and a drop in popularity could increase the government's incentives to reverse these reforms.
• GDP growth should slow to 3.3% in 2009, as tighter lending conditions slow domestic demand, and as recession in parts of the EU curtails export growth. In 2010 growth will recover to some degree as export prospects improve.
• The current-account deficit will decline as a share of GDP in 2009, as energy prices fall and income debits moderate. The current-account deficit is unlikely to rise much in 2010, as stronger exports cancel out higher energy prices.

Monthly review

• The opposition has recently made greater attempts to present a unified front on important economic and political issues.
• After initially putting forward a budget proposal for 2009 based on GDP growth of 6.5%, which led to a chorus of domestic criticism, the Ministry of Finance cut its GDP growth forecast to 4.6%, which still appears unrealistic.
• In order to head off the potential impact of the global crisis on the Slovak economy, the government adopted a package of 27 measures.
• GDP growth slowed to 7.1% year on year in the third quarter of 2008, from 7.6% in the second quarter.
• The balance of economic indicators for the third quarter indicates that, as in the previous three quarters, domestic demand made the largest contribution to overall growth.
• Forward-looking indicators suggest that Slovakia will be affected by the global economic crisis to a greater extent than previously thought. Manufacturing orders and survey data give particular cause for concern.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;10
NAICS Code: 52;212;11