Slovakia Business Forecast Q1 2007

Content

• Executive Summary
  • Focus On 2007
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Domestic Political Outlook
  • Smooth First Months, But Frictions Possible
  • The past four months have on the whole supported our view that Slovakia's new three-party government
  • will be more stable than its predecessor which, despite being united on a broad agenda of pro-Western
  • reform, was subject to frequent bickering and crises
  • Table: Slovak Cabinet & Other Key Posts (As Of December 2006)
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Economic Activity
  • Record Growth Confirmed
  • BMI has again raised its GDP growth forecasts for Slovakia, after Q306 figures revealed record expansion
  • of 98% y-o-y If anything, the risks to our projections are mainly to the upside, with domestic overheating
  • and a greater than expected slowdown in external markets representing the main downside risks
  • Table: Growth And Output
  • Table: GDP Growth by Expenditure Component (% y-o-y, constant prices)
  • Fiscal Policy
  • Assessing The 2007 Fiscal Package
  • Given the extremely rapid pace of economic growth and Smer's toning down of its pre-election spending pledges,
  • we believe there is a good chance of the fiscal deficit meeting the Maastricht criterion as planned in 2007
  • Table: General Government Budget
  • Monetary & Exchange Rate Policy
  • Nearing The Top Of The Interest Rate Cycle?
  • As widely expected, the National Bank of Slovakia left interest rates on hold for the second month running in
  • November In light of the recent sharp appreciation of the koruna, we have reduced our expectations with
  • regard to the extent of further monetary tightening
  • Table: Inflation and Exchange Rates
  • Balance Of Payments
  • Waiting For The Trade Upswing
  • Latest data show the external trade and current account deficits continuing to widen y-o-y into Q306 We
  • nevertheless remain confident that this situation will begin to reverse from late-2006, and throughout the
  • remainder of our five-year forecast period
  • Table: Balance Of Payments
  • External Debt
  • Solid External Debt Profile
  • As with many CEE states, there has been a rapid run-up in Slovakia's external debt in recent years, and we
  • expect this to continue, so that obligations to non-residents reach US$48bn by the end of the decade
  • However, we do not think that this poses a significant risk to macroeconomic stability Real GDP and
  • export growth have been strong and the koruna has been appreciating - which has kept debt ratios in
  • check - while at the same time the banking sector is highly robust
  • Regional Outlook
  • A Good Year For The Eurozone: The Domino Effect
  • Eurozone growth made headlines in 2006, with the regional economy set to have expanded at its fastest pace
  • since the start of the decade Here we look at the positive impact of strong eurozone performance on the
  • Central European (CE4) states: the Czech Republic, Poland, Hungary and Slovakia, and assess the outlook for 2007
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Emerging Europe
  • Diverging Ratings Trends
  • Table: Emerging Europe Sovereign Ratings - Evolution of Ability to Pay
  • Table: Emerging Europe Sovereign Ratings - Evolution of Willingness to Pay
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Demographic Indicators
  • Table: Employment Indicators
  • Foreign Investment Policy
  • Table: Emerging EuroPe Annual FDI Inflows
  • Table: Slovakia, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations, US$mn
  • Tax Regime
• Chapter 5: Key Sectors
  • Autos
  • Industry Forecast Scenario
  • Growth on the Slovakian automotive market is being led by commercial vehicle sales encouraged by high levels
  • of capital investment in the industrial and transportation sectors In the first 10 months of 2006, car sales rose
  • 30% y-o-y to 48,300 units, while sales of light commercial vehicles rose 349% y-o-y to 15,749 units Overall
  • sales grew 105% to 67,345 units BMI is forecasting a slowdown in growth from 5% in 2007 to 2% by 2010
  • Meanwhile, the commercial vehicle market is likely to sustain double digit growth, which is forecast
  • at 202% in 2010, down from an expected 325% in 2006
  • Table: Slovakia Autos Sector - Historical Data & Forecasts (CBUs unless otherwise stated)
  • Pharmaceuticals & Healthcare
  • Market Summary
  • Due its small size and modest growth projection, Slovakia's pharmaceutical market is not the most attractive
  • in Central and Eastern Europe We currently value the Slovakian pharmaceutical market at US$750mn and we
  • forecasting 37% growth through to 2010
  • Table: Drug Market Indicators
  • Table: Health Expenditure Indicators