Country Report Slovakia October 2017

Country Report Slovakia October 2017

  • October 2017 •
  • Report ID: 359747 •
  • Format: PDF

Outlook for 2018-22



  • After the March 5th 2016 general election the centre-left Direction-Social Democracy (Smer-SD), which had led a single-party majority government since 2012, remained the largest party but lost its absolute majority.
  • Smer-SD now leads a coalition government including the conservative Slovak National Party (SNS) and the centre-right Bridge-Party of Co-operation (Most-Hid). The centre-right Network (Siet) left the government in August 2016.
  • A coalition crisis in August 2017 highlighted the relatively high risk of the coalition not sitting out its four-year term. Nevertheless, at the moment none of the parties has an incentive to call an early election.
  • The government has set ambitious deficit targets. The Economist Intelligence Unit considers these to be over-optimistic, but expects the deficit to stay within the EU limit of 3% of GDP and to narrow gradually, from 1.4% in 2017.
  • Despite losing the boost from EU-funded investment in 2015, growth remained strong last year, at 3.3%. We expect broad-based growth in the coming years, at 3.3% on average in 2017-22.
  • A car plant under construction by Jaguar Land Rover will help to drive growth in the coming years. In 2017-18 construction of the plant will push up imports; the start of production will add to growth and exports from 2018.
  • Headline inflation turned positive in late 2016. Base effects, the rise in oil prices and continued GDP growth will push up inflation to 1.4% on average in 2017. Wage pressures will push inflation to 2% on average in 2018-22.
  • The current account moved into a modest deficit in 2016, which we expect to narrow slightly this year. From 2018 we expect rising trade surpluses to lead to small current-account surpluses, of around 1% of GDP in 2018-22.


Review



  • In its budget for 2018-20 the government plans to reduce the deficit mainly by increasing revenue through closing loopholes and fighting tax evasion. It plans to run a deficit of 0.8% of GDP in 2018 and reach a balanced budget by 2020.
  • In September Marian Kotleba, the leader of the far-right People's Party-Our Slovakia (L'SNS), announced that he would run in the local elections in November to win a second term as governor of the Banska Bystrica region.
  • In August annual EU harmonised consumer price inflation (HICP) was 1.6%, up from 1.2% on average in the previous three months. This was the fastest rate of inflation in over four years, mainly driven by rising food prices.
  • In September the economic sentiment indicator improved sharply, to 104.8, from 102.4 a month earlier, 0.8 points above its long-term average and 1.8 points above its year-earlier level.


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