Country Report Slovakia January 2009

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 adopted the euro in January 2009. 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 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, linked to the fall in energy prices and the moderation in income debits. The current-account deficit is unlikely to rise in 2010, as stronger exports cancel out the impact of higher energy prices.

Monthly review

• A poll published in late December 2008 suggests that many supporters of the ruling parties disapprove of levels of corruption, nepotism and cronyism in public life, which they perceive to be rising.
• The perception of rising corruption could combine in the coming months with a sharply worsening economic outlook to increase public disaffection towards the ruling parties.
• On January 1st 2009 Slovakia adopted the euro. Preparations for the changeover over the past several months were meticulous, and the immediate transition to the new currency went smoothly.
• The conflict over gas supplies between Russia and Ukraine that erupted at the end of 2008 appears to have had a particularly severe impact on Slovakia, where a state of emergency has been declared.
• The balance of economic and confidence indicators suggests that the slowdown in GDP growth, already evident earlier in 2008, gathered pace in the fourth quarter of the year.
• After stagnating in October, industrial output plummeted year on year in November, mirroring results in several of Slovakia's neighbours.

This report covers the following industry codes:
SIC Code: 60;37
NAICS Code: 52;336

This report covers the following industry codes:
SIC Code: 60;37
NAICS Code: 52;336