25.

SLOVAKIA

Domestic demand drives the recovery

The economic recovery is expected to continue in 2016, driven mainly by accelerating household
spending. The unemployment rate is forecast to gradually decline throughout 2016 and to fall below
10% in 2017. Inflation is expected to turn positive in early 2017. Tax-rich growth is projected to
continue supporting consolidation plans.
Recovery continues on a sustainable path

Slovakias real GDP grew by 3.6% in 2015 on the

back of a surge in investment activity and robust
private consumption. Booming investment
reflected heavy use of EU funds, as the possibility
to draw on funds available under the 2007-13
programming period came to an end. Investment
accounted for 2.9 percentage points of total output
growth in 2015, the highest such contribution since
2005. Slovakias economic expansion is set to
continue, with real GDP growth exceeding 3% in
both 2016 and 2017 on the back of robust domestic
demand. With large investments in the automotive
industry scheduled over 2016 to 2018, foreign
direct investment looks primed to drive overall
investment growth. Public investment spending,
however, is set to decline in 2016, as the
drawdown on EU funds returns to more normal
levels. The output gap is expected to continue
closing over the forecast horizon.
Graph II.25.1: Slovakia - Real GDP growth and contributions
8

pps.
forecast

6
4
2
0
-2
-4
-6
-8
08

09

10

11

12

13

14

15

16

Dom. demand, excl. invent.

Net exports

Inventories

Real GDP (y-o-y%)

17

household credit. Low energy prices continue to

benefit real disposable incomes, including via
windfall gains such as refunds paid by the
government to households on recent gas bills.
These factors are likely to support household
spending in the coming quarters. Overall,
household consumption growth is expected to
reach 3.6% in 2016 and to slow only marginally in
the next year.
Imports driven by investment dynamics

The high level of public investment in 2015 drove

an increase in imports which outweighed the
growth in exports. As a result net exports detracted
from growth in 2015. The trade balance is forecast
to turn positive in 2016, reflecting a deceleration in
imports on the back of the slowdown in overall
investment growth. In 2017, imports are forecast to
accelerate, as the announced investment in the
automotive sector is expected to peak.
Labour market recovery continues

Employment gains were strong throughout 2015,

and labour market conditions are expected to
further improve in line with the robust economic
expansion. Unemployment fell to 11.5% in 2015
and is expected to continue receding over the
coming years, falling below 10% in 2017. The
increasing number of foreign workers also reflects
the ongoing recovery of the labour market. The
long-term unemployment rate fell in 2015,
although it remains elevated. Nominal wage
growth increased in 2015 and is set to rise to over
3% in 2016 and thereafter, providing a significant
stimulus to household purchasing power in a lowinflation environment.

Household demand takes the lead

Strengthening household spending is forecast to

become the main driver of growth in 2016 and
thereafter, gaining support from steady increases in
employment and solid real wage growth. At the
same time, the easing of credit conditions,
reflecting the ECBs accommodative monetary
policy stance, contributes to ongoing increases in

114

Inflation remains subdued

Consumer prices declined by 0.3% in 2015 as a

result of the sharp fall in energy prices.
Deflationary pressures are expected to dissipate
gradually, in line with the pickup in household
demand and solid nominal wage growth. Overall
inflation is set to remain close to zero in 2016,

Member States, Slovakia

with the decline in energy and food prices being

offset by a recovery in the prices of services.
Overall inflation is likely to recover in 2017, also
due to the low base of the preceding year.
Strong growth of
consolidation plans

tax

revenues

supports

The general government deficit deteriorated in

2015 to 3.0% of GDP. This was in part due to the
accelerated drawdown of EU funds in the context
of the expiring programming period, which lead to
increases in co-financed spending. Furthermore,
financial corrections related to EU funds and
higher-than-planned spending by the local and
central governments (including on health care) also
contributed to the worsening of the fiscal position
of the general government. On the other hand,
growth in tax revenues was strong in 2015.
In 2016, the headline deficit is projected to decline
to 2.4% of GDP. Reflecting favourable economic
conditions and past efforts to fight tax fraud,
robust tax revenues are expected to continue
supporting the governments consolidation plans.
Savings from a programme to reduce spending on
pharmaceuticals look likely to disappoint, so that

healthcare expenditure growth is projected to be

little changed from recent years. The forecast
assumes that, as in 2015, the local governments
continue to run lower surpluses than assumed by
the government. In conjunction with welfareoriented measures such as the reimbursement of
gas bills to households due to lower gas prices, this
limits the pace of deficit reduction.
For 2017, the government announced a reduction
of the corporate income tax rate by 1 pp. to 21%.
The resulting revenue loss is expected to be
broadly compensated by prolonging a special levy
on companies operating in regulated industries.
Assuming no other changes in government
policies, tax-rich growth should contribute to a
decline in the deficit to 1.6% of GDP in 2017. A
risk to the forecast in that year stems from the
measures that might be agreed by coalition
partners of the newly-elected government after the
publication of this forecast.
After a deterioration in 2015, the structural deficit
is likely to progressively decline in the following
years. The public debt-to-GDP ratio is projected to
ease slightly over the forecast horizon to some
53% in 2017.

Table II.25.1:
Main features of country forecast - SLOVAKIA
2014
bn EUR
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:

Annual percentage change

Curr. prices

% GDP

96-11

2012

2013

2014

2015

2016

2017

75.6

100.0

4.3

1.5

1.4

2.5

3.6

3.2

3.3

42.7

56.6

4.2

-0.4

-0.8

2.3

2.4

3.6

3.2

14.2

18.8

3.4

-2.6

2.2

5.9

3.4

0.9

2.6

15.8

20.9

4.1

-9.2

-1.1

3.5

14.0

1.5

5.7

7.7

10.2

5.6

-10.9

-9.4

17.0

17.3

0.8

5.7

69.4

91.9

8.6

9.3

6.2

3.6

7.0

4.3

5.9

66.6

88.2

8.1

2.5

5.1

4.3

8.2

3.5

6.5

73.1

96.8

4.1

3.1

1.8

1.0

4.4

3.3

3.3

4.2

-2.9

-0.3

3.1

4.9

2.6

3.6

0.1

-1.3

0.6

-0.2

-0.2

-0.2

0.0

0.1

5.7

1.2

-0.4

-0.8

0.8

-0.3

Domestic demand
Inventories
Net exports

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

0.3

0.1

-0.8

1.4

2.0

1.8

1.5

14.8

14.0

14.2

13.2

11.5

10.5

9.5

8.2

2.6

2.6

1.8

2.4

3.5

3.9

4.0

1.1

0.3

0.7

0.8

2.1

2.1

0.2

-0.2

-0.2

0.9

1.0

2.1

0.8

9.0

7.1

8.3

9.3

10.3

10.5

10.3

3.8

1.3

0.5

-0.2

-0.3

0.0

1.3

5.3

3.7

1.5

-0.1

-0.3

-0.1

1.5

-0.8

-1.3

-0.5

0.0

-0.4

-0.1

-0.2

-6.0

3.1

3.7

3.4

2.3

3.2

2.7

-6.5

0.2

0.7

-0.8

0.8

-0.6

-1.1
-1.1

-6.4

1.7

2.2

0.2

1.1

-0.9

-5.6

-4.3

-2.7

-2.7

-3.0

-2.4

-1.6

-3.6

-1.7

-2.0 -

-2.6

-2.2

-1.5

-3.7

-1.7

-2.0 -

-2.3

-2.1

-1.5

38.1

52.4

55.0

53.9

52.9

53.4

52.7

(a) as % of total labour force. (b) gross saving divided by gross disposable income. (c) as a % of GDP. (d) as a % of potential GDP.

115