Country Report Slovakia May 2009

Outlook for 2009-10

• The Economist Intelligence Unit's central forecast is that the government will survive throughout the forecast period. However, tension between the ruling parties means that there remains a 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 2% in 2009 as higher unemployment and tighter lending conditions reduce domestic demand growth and as recession in Slovakia's main export markets reduces exports.
• Growth should return to positive territory in 2010, although we expect the outlook for exports to remain comparatively subdued.
• The current-account deficit is forecast to narrow modestly as a share of GDP in 2009-10 as energy prices fall and income debits moderate.

Monthly review

• As widely expected, Ivan Gasparovic, who enjoyed the support of the two largest government parties, was re-elected to the presidency in the second round of the election, held on April 4th.
• An opaque tender at the Ministry of Construction and Regional Development was belatedly cancelled, but the episode reinforced the perception that the government's attitude towards cronyism is at best lax.
• The consolidated budget deficit for 2008 came in at 2.2% of GDP, below the threshold mandated by EU rules. However, more recent data provided clear evidence that the economic downturn is eating into state revenue.
• Expectations that the end of the gas crisis in January would bring at least a slowdown in the rate of deterioration in industrial activity did notmaterialise.
• Seasonally adjusted retail sales volumes fell by nearly 6% in January-February compared with the end of 2008.
• International and domestic economic confidence indicators still stand at or near historically low levels.

This report covers the following industry codes:
SIC Code: 70;60
NAICS Code: 72;52