24.

SLOVAKIA
Temporary lull in growth
Deceleration in 2013, followed by a pick-up in 2014

Despite a marked deceleration in industrial production in the last quarter of 2012, real GDP grew by 2%, one of the highest growth rates in the EU. The positive growth performance in 2012 was driven by a record increase in the production and export of cars, due to the opening of new plants, while the rest of the economy stagnated. However, economic growth remained well below the level historically associated with improvements in the labour market and the unemployment rate increased to 14%. With domestic demand constrained by persistent weaknesses in the labour market and external demand from Slovakia's trading partners set to decelerate markedly, the growth rate of real GDP is forecast to temporarily slow to 1% in 2013. The economy is expected to benefit from a recovery in the second half of 2013, primarily supported by a pick-up in private investment and external demand, the first signs of which appear in the most recent readings of monthly indicators of new orders. Real GDP growth is expected to rebound to 2.8% in 2014.
Graph II.24.1: Slovakia - GDP growth and contributions
15 pps.

investment in the automotive sector is expected to reach the production phase. At the current juncture the reliance of exports on a few cyclicallysensitive sectors represents a downside risk to the forecast.
Domestic demand supported mainly investment amid a sluggish labour market by

After the negative contribution to real GDP growth in 2012, domestic demand is expected to remain subdued in 2013 and to contribute significantly to growth only in 2014. With unemployment on the rise and a sizeable consolidation effort taking place in 2013, private consumption growth is expected to resume only in 2014. On the other hand, having dropped markedly in 2012, investment is forecast to gradually return to its long-term level, starting with a modest increase already in 2013. Low projected interest rates along with an improvement in the economic outlook are expected to support a more decisive increase in private investment in 2014. This forecast additionally expects a significant acceleration in the drawdown of EU funds, as the financial programming period draws to an end. Nevertheless, in the light of past experience this remains subject to implementation risks. Labour market conditions remain challenging over the forecast horizon. Modest employment growth is expected to resume only in 2014, whilst the unemployment rate is projected to stay above 14% over the forecast horizon.
Inflation developments tamed

10
5 0 -5 -10

forecast

07

08

09

10

11

12
Inventories

13

14

Dom. demand, excl. invent.

Net exports

GDP (y-o-y%)

Wage pressures are to remain contained in the next two years, consistent with developments in the labour market. HICP inflation is accordingly set to stabilise at close to 2% mirroring decelerating growth in energy and commodity prices and subdued domestic demand pressures.
Consolidation on track

Exports remain the main driver of growth

Net exports are expected to continue to support growth over the forecast horizon, although only moderately in 2013, as the one-off impact of the increase in capacity in the automotive sector fades out while imports pick up only gradually. In 2014, the external pull is projected to strengthen as new

In 2012, the general government deficit reached 4.3% of GDP, some 0.3 pp. lower than targeted and compared to 5.1% of GDP in 2011. The final outcome was positively influenced by the revenue measures adopted by the government in the course

88

Member States, Slovakia

of the year as well as a lower-than-budgeted drawdown of EU funds, non-budgeted revenue and lower investment of local governments, and savings on social insurance expenditure. This more than offset substantial revenue shortfalls (especially VAT) and a higher-than-budgeted assumption of past hospital debts. The multi-annual 2013-15 budget includes several measures that contribute to the continued deficit reduction in 2013. The consolidation package mainly consists of revenue measures. These include a hike in the corporate income tax rate from 19% to 23%, a new 25% tax bracket in the personal income tax system, adjustments in the taxation of self-employed and atypical work contracts, a broadening of the bases for social contributions, and increases in administration fees. Expenditure savings are envisaged in the wage bill of public employees, goods and services and general government investment. Substantial reductions in expenditure would come from local governments and budgetary entities not under the direct control of the central government. In the absence of implementation measures, it is assumed

in the forecast that these savings will not be fully realised. In March 2013, the government presented additional measures to counter a stronger-thanexpected deterioration in projected revenue for 2013. This shortfall is to be addressed mainly by eliminating budgeted but not yet allocated expenditure, and through lower spending on health care and extra dividend income. The authorities also plan an auction of telecom licences and to sell the oil reserves. The headline deficit in 2013 is projected to reach 3% of GDP with the structural balance estimated at 3% of GDP. In view of the expiration of some oneoff and temporary revenue measures, under the no policy change assumption, the deficit is projected to increase slightly above 3% in 2014 despite a pick-up in economic activity. The structural balance would improve by some pp. The debtto-GDP ratio is projected to increase over the forecast horizon and to reach 56.7% of GDP in 2014.

Table II.24.1: Main features of country forecast - SLOVAKIA

2011 bn EUR Curr. prices
GDP Private consumption Public consumption Gross fixed capital formation of which : equipment Exports (goods and services) Imports (goods and services) GNI (GDP deflator) Contribution to GDP growth :
69.1 39.7 12.4 16.0 8.1 62.0 61.6 67.6

Annual percentage change

% GDP
100.0 57.5 18.0 23.1 11.8 89.7 89.1 97.8

92-08
-

2009
-4.9 0.2 6.1 -19.7 -26.6 -16.3 -18.9 -3.7 -4.1 -3.8 2.6 -2.0 12.1 2.5 5.7 7.0 6.9 -1.2 0.9 -0.7 1.1 -2.5 -1.7 -8.0 -7.0 -7.2 35.6

2010
4.4 -0.7 1.0 6.5 11.1 16.0 14.9 3.8 1.4 2.5 0.7 -1.5 14.5 5.1 -0.9 -1.4 10.7 0.5 0.7 -0.8 0.8 -2.5 -0.9 -7.7 -7.3 -7.1 41.0

2011
3.2 -0.5 -4.3 14.2 46.7 12.7 10.1 2.3 2.0 -0.7 2.0 1.8 13.6 1.1 -0.4 -2.0 9.8 1.6 4.1 -1.5 1.1 -2.5 -0.8 -5.1 -4.8 -5.2 43.3

2012
2.0 -0.6 -0.6 -3.7 -3.0 8.6 2.8 2.1 -1.5 -1.6 5.2 0.1 14.0 2.0 0.1 -1.3 8.2 1.4 3.7 -0.9 4.5 2.0 3.3 -4.3 -4.0 -4.1 52.1

2013
1.0 0.0 -0.5 1.4 1.0 3.0 2.4 0.8 0.2 0.1 0.7 0.0 14.5 1.7 0.7 -1.7 5.5 2.5 1.9 0.8 6.0 2.5 4.0 -3.0 -2.1 -3.0 54.6

2014
2.8 0.9 1.3 3.0 3.0 6.2 5.1 2.8 1.4 0.0 1.4 0.5 14.1 3.0 0.7 -1.3 6.5 2.0 2.0 0.0 7.2 3.3 4.5 -3.1 -2.0 -2.4 56.7

Domestic demand Inventories Net exports

Employment Unemployment rate (a) Compensation of employees/head Unit labour costs whole economy Real unit labour costs Saving rate of households (b) GDP deflator Harmonised index of consumer prices Terms of trade of goods Merchandise trade balance (c) Current-account balance (c) Net lending(+) or borrowing(-) vis--vis ROW (c) General government balance (c) Cyclically-adjusted budget balance (c) Structural budget balance (c) General government gross debt (c)

(a) Eurostat definition. (b) gross saving divided by gross disposable income. (c) as a percentage of GDP.

89