Country Report Slovakia June 2009

Summary

The Economist Intelligence Unit's central forecast is that the government will survive through the forecast period. However, occasional tension between the ruling parties carries the risk of a coalition break-up.
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 is forecast contract by 4% in 2009 as higher unemployment and tighter lending conditions reduce domestic demand and as recession in Slovakia's main export markets reduces exports.
Modest growth in economic output should return in 2010, although we expect the outlook for exports to remain subdued.
The current-account deficit is forecast to widen modestly as a share of GDP in 2009 as goods exports plummet, and to begin to narrow from 2010 as the services and transfers balances improve.

In recent weeks Mr Fico has stamped his authority decisively on his junior coalition partner, the Slovak National Party (SNS), dismissing two of its cabinet ministers over allegations of cronyism.
This led to speculation that Mr Fico may be preparing to call a general election ahead of the scheduled date of June 2010. However, we believe this scenario to be unlikely.
The deterioration in the public finances is becoming more evident as the economy falls into recession.
The Ministry of Finance has yet to update officially its macroeconomic forecast, although it has acknowledged that a contraction in the economy is likely in 2009.
According to a flash estimate by the Statistical Office of the Slovak Republic (SUSR), unadjusted GDP fell by 5.4% year on year in the first quarter of 2009, mostly owing to a massive contraction in industrial production.
The only discernible positive in the current economic situation is that inflationary pressures are abating.

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