Country Report Slovakia February 2009

Outlook for 2009-10

• The Economist Intelligence Unit's central forecast is that the government will survive throughout the forecast period. However, we do not rule out that tension between the ruling parties could cause the coalition to break up during this time.
• 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.
• In the short term the government is likely to focus on alleviating the impact of the economic slowdown.
• Most of the previous government's free-market reforms should 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 2% in 2009, as tighter lending conditions reduce domestic demand growth, and as recession in parts of the EU curtails export growth. Growth should improve in 2010, but only to a limited degree, as the outlook for exports remains comparatively subdued.
• The current-account deficit should decline as a share of GDP in 2009-10, as energy prices fall and income debits moderate compared with 2008.

Monthly review

• Mr Fico has yet to decide whether to dismiss the embattled construction minister, Marian Janusek. His reluctance may be explained in part by a wish not to anger Mr Janusek's party, the Slovak National Party (SNS).
• In response to the allegations of wrongdoing against his government, Mr Fico is attempting to refocus attention on to the opposition, particularly its time in government in 2002-06.
• The main recent development in foreign policy was the replacement of the departing foreign minister, Jan Kubis, by Miroslav Lajcak, until now the UN and EU's High Representative in Bosnia and Hercegovina (BiH).
• The government is now acknowledging more fully the impact of the global downturn on Slovakia's economy, and in late January 2009 it unveiled a new set of measures worth €332m (US$448m).
• The gas crisis, which ended on January 19th, revealed the risks inherent in the lack of diversification of energy sources in Slovakia.
• Economic and sentiment indicators published since the turn of the year have confirmed that Slovakia faces a deep downturn, which began in earnest in the fourth quarter of 2008.

This report covers the following industry codes:
SIC Code: 49
NAICS Code: 22