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Slovakia Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 49 pages

Core Views
Prime Minister Robert Fico will continue to benefit from his party's outright majority in parliament, which has eased the policy formation and implementation process. While this is positive for political stability in the short term, it does not provide much space for consensus politics, with Fico's tax and welfare reforms likely to keep investors
cautious. Fico's failed bid for the presidency in March 2014 is a sign of growing voter wariness of single-party rule and mainstream political parties, with general elections in 2016 unlikely to give the ruling party another outright parliamentary majority.

Although Slovakia has been released from the European Commission's Excessive Deficit Procedure, the government will have to maintain a relatively tight fiscal stance in light of rising public debt loads and looming constitutional debt brakes. However, we believe Slovakia is on a sustainable fiscal trajectory with few risks to its solid sovereign credit profile. The short-term economic outlook has brightened as export growthled growth of the previous years is beginning to translate to a visible pick-up in domestic demand. We expect domestic demand growth to remain robust, driving growth in the coming years. The current account will remain in surplus over the medium term,
even as economic growth becomes increasingly weighted towards domestic demand.

Table Of Contents

Slovakia Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics .. 8
Russia Ties To Strain EU Relations.8
Slovakia will attempt to maintain good relations with Russia while at the same time being part of the EU's efforts to aid Ukraine, a
delicate balancing act that threatens to fray relations with both sides. This will be negative for Slovakia's diplomatic standing within EU
institutions and among NATO members.
Table: Political Overview8
Long-Term Political Outlook. 10
Convergence With West Remains Core View.10
We expect Slovakia to continue to converge with Western European policies and standards of living over the next 10 years as the
small economy has benefited greatly from inclusion in the bloc. However, we stress that the country will face a number of challenges to
political stability including corruption, relations with the eurozone, ethnic tensions and population decline.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity .. 14
Domestic Demand Will Prop Up Growth14
Economic activity in Slovakia will face headwinds in the coming quarters from weaker external demand, but domestic demand will
remain strong enough to avert a significant slowdown.
Table: GDP By Expenditure14
Balance Of Payments 16
Smaller Current Account Surpluses Ahead.16
Weak external demand and relatively strong domestic demand will narrow Slovakia's current account surplus from 2.1% of GDP in 2013
to 0.9% by 2015. Slovakia has outperformed Central European peers in terms of its ability to attract foreign direct investment, which
bodes well for medium-term growth and export potential.
Table: Balance Of Payments..16
Fiscal Policy 18
On A Stable Trajectory..18
We forecast the pace of fiscal consolidation in Slovakia to be slower than government projections and EU recommendations in the
coming years. However, we see few risks to the country's sovereign credit profile given that public debt and deficit levels are at
sustainable levels and will remain comfortably within EU-mandated limits.
Table: Fiscal Policy.18
Regional Monetary Policy .. 20
Global Strategy..20
The ECB has embarked on additional monetary easing at the September meeting, earlier than we had expected. The ECB's almost
knee-jerk reaction to the longstanding deterioration in headline inflation and macro data suggests that the central bank has started to
backpedal fast, having previously played down the risks of deflation.
EUR: Structural Bearish View Playing Out..22
Our long-running bearish EUR view is finally playing out. Even if the euro bounces in the coming months (given how bearish sentiment
has now turned and how inflated expectations of aggressive monetary easing have become), the direction versus the dollar and a broad
set of currencies remains lower over a multiyear period.
Table: Eurozone Currency Forecast..22
Chapter 3: 10-Year Forecast. 25
The Slovak Economy To 2023.. 25
Lower Trend Growth Ahead..25
Macroeconomic stability and institutional convergence with Western norms will be bolstered in the long term by Slovakia's eurozone
membership. However, we believe the drawbacks of having the euro will outweigh the benefits, limiting potential growth in the next
decade. Nevertheless, we expect real GDP growth to average 2.5% over our 10-year forecast period, well above eurozone averages.
Table: Long-Term Macroeconomic Forecasts25
Chapter 4: Operational Risk. 27
Operational Risk Index. 27
Operational Risk .. 28
Table: Slovakia - Operational Risk.28
Transport Network .. 29
Table: Emerging Europe Transport Network Risks..30
Economic Openness . 32
Tab le: Top Five Trade Partners - Product Imports (USDmn ).33
Tab le: Top Five Product Exports (USDmn )34
Chapter 5: Key Sectors.. 37
Oil and Gas 37
Tab le: Head line Forecasts 37
Table: Oil Production38
Table: Oil Production38
table: Gas Production.39
Table: Gas Production.39
Water 40
Table: Water Extraction41
Table: Water Consumption..42
Other Key Sectors 45
tab le: Pharma Sector Key Ind icators .45
table: Telecoms Sector Key Indicators45
table: Defence and Security Sector Key Indicators.45
table: Infrastructure Sector Key Indicators..46
table: Food and Drink Sector Key Indicators.46
table: Autos Sector Key Indicators.46
tab le: Fre ight Key Ind icators ..46
Chapter 6: BMI Global Assumptions.. 47
Global Outlook 47
Big Emerging Market Revisions.47
Table: Global Assumptions.47
Tab le: Developed States , Rea l GDP Growt H, %..48
Tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 48
Tab le: Emerg ing Markets , Rea l GDP Growth , %.49

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