2. Political development
• Social-democratic government with strong mandate
• Social-democratic Smer party with over 55% of seats in the Parliament
• The election victory in the spring 2012 helped to form a one-party
government with a simple majority
• Regional elections in autumn 2013
• Presidential elections in May 2014 (PM Fico to candidate?)
3. Economic fundamentals
• Slovakia has low public debt (52.1% of GDP) compared to EU (85.3%)
and EMU average (90.6%)
• The level of private debt is also very low (76.3% of GDP) – the fourth
lowest private debt/GDP ratio in EU
• Basicly no real exposure to FX loans
• Sound banking sector which is not too big compared to the economy
(less then 82% of GDP, well below the EU average)
• Commitment to cut deficit below 3% of GDP and it was reduced by 0.8
ppt last year
• Slovakia participates in the European Stability Mechanism
4. Structure of the Economy
3%
30%
9%
16%
4%3%
5%
6%
12%
3% 9%
GDP by branches
Agriculture, forestry and
fishing
Industry total
Construction
Wholesale and retail trade
Information and
communication
Financial and insurance
activities
Real estate activities
Professional, scientific and
technical activities
Public administration and
defence
6. Foreign demand – the main engine of growth
• Slovak economy grew by 0.3% qoq, 0.9%yoy repectively in Q2 2013
• This represent a mild acceleration from 0.6% in Q1 2013
• The main and only positive contribution in 2012 came from foreign
demand
• The same development prevailed in Q1 2013
• But the household consumption revived in Q2 2013 and returned to
growth for the first time since Q3 2009 (already signalled by the retail
sales growth in Q2, first after 4 years)
• Real wages accelerated to 1.6% in Q2 2013 from 0.3% in Q1 positively
influenced by the decline of inflation
• Government spending decreased by -0.1% in Q2 after -0,6% in Q1
• Investments (GFCF) recorded a decline of -6.4% yoy (-8.4% in Q1) and
are on negative trajectory for aproximately one and a half year
7. Domestic demand
•Household consumption decreased by -0.6% yoy in 2012
•The retail sales confirmed the weakness of domestic demand
as they droped by -1.0% in 2012. However, it revived in Q2
2013 for the first time after 4 years.
•The revival of consuption is supported by the rise of real
wages, first after 2 years of a decline.
•The unemployment rate is still relatively high – stabilizing
above the long run average at 14% (LT avg 13.5%)
•SOSR reported decline of unemployment from 14.5% to 14%
in Q2 2013
•The real wages increased by 1% in H1 2013 (Q1 +0,3% and
Q2 +1,6%)
•But declining inflation also helped (3.2% in December 2012
vs. 1.5% in July 2013)
9. Foreign trade
•Foreign trade underwent a big change since 2008
•It was the last year when trade was in the red figures
•The merchandise trade moved from EUR -760 mil. in 2008 to EUR
+3.6 bn in 2012 (+5.1% of GDP)
•The trade surplus even increased by almost 50% in H1 2013
compared same period of the previous year (1.9bn EUR vs. 3.0 bn
EUR)
•The export growth outperformed import (10.7% y/y vs. 6.2% y/y in
2012) mainly thanks to auto export and dampened imports
•Export and import dynamics decelerated in 2013 but export still
outperforms import
•This year the foreign demand is the main engine of growth thanks
to auto sector and its export
10. Industrial production
• The main driving forces of improvement in foreign trade were the new
export capacities in the manufacturing sector, namely automotive
industry
• Car producers increased the production by almost 50% y/y in 2012 but
the scope for further rise is limited due to production limits (close to 900
thousand)
• Industrial production rose by 2.6% y-on-y in H1 2013 after rise by 8.1%
in 2012
• The main driving force remains auto production and steel
• VW and KIA reported rise of production by about 5-6% y-on-y in H1
2013 (in pieces)
• Some auto makers are increasing its market share or starting to export
more to BRIC countries
11. Structure of the Slovak industrial production
Share from total
Industry total
Mining and quarrying 0,7%
Manufacturing 81,7%
Manufacture of food products, beverages and tobacco products 5,6%
Manufacture of textiles, apparel, leather and related products 2,0%
Manufacture of wood and paper products, and printing 4,3%
Manufacture of coke, and refined petroleum products 5,7%
Manufacture of chemicals and chemical products 3,3%
Manufacture of pharmaceutical medic., chem.and botanical prod. 0,4%
Manufacture of rubber and plastic products and oth. non-metallic mineral products 6,9%
Manufacture of bas.metalic and fab.metalic products except machinery and equipment 12,2%
Manufacture of computer, electronic and optical products 7,9%
Manufacture of electrical equipment 3,4%
Manufacture of machinery and equipment n.e.c. 4,1%
Manufacture of transport equipment 22,2%
Other manufacture, repair and installation of machinery and equipment 3,6%
Electricity, gas, steam and air-condition supply 16,4%
Water supply, sewerage, waste manag. and remediation 1,3%
100,0%
14. Public finance deficit
• The public finance deficit was reduced from -8% of GDP in 2009 to -
4.3% of GDP in 2012
• The budget deficit declined by 0.8ppt of GDP during the first year of the
new social-democratic government (from -5.1% to -4.3%)
• The original government target was 4.6% of GDP
• The main cabinet priority for 2013 is to lower the public finance deficit
below 3.0% of GDP
• The government debt increased from 49% to 53% of GDP but stayed
well below the EMU average (90.6% in 2012)
• Debt to GDP ratio could attack 55% threshold this year
15. New budgetary measures
• Government decided to achieve its goals by implementation of various
measures mainly on the revenue side of the budget
• The fiscal tightening should be worth 4.6% of GDP over 2011 – 2013
• Higher income taxes
• Higher dividends from state run companies
• Higher caps on social contributions
• New levy on bank liabilities
• But also on the expenditure side: savings by the state administration
• Pension system reform: linking retirement age to life expectancy and
contributions partially moved from second private pillar to first pillar
• New fiscal responsibility act with a debt brakes
• Independent fiscal council
16. Public finance deficit
-1,8 -2,1
-8 -7,7
-5,1
-4,3
-2,94
-9,0
-8,0
-7,0
-6,0
-5,0
-4,0
-3,0
-2,0
-1,0
0,0
2007 2008 2009 2010 2011 2012f 2013f
Public finance deficit
(in % of GDP)
17. Public debt
42,4 41,43
34,17 30,9 29,6 27,9
35,6
41 43,3
52,1
0,0
10,0
20,0
30,0
40,0
50,0
60,0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Public debt
(% of GDP)
Public debt
18. Banking sector
• Slovakia has sound and highly liquid banking sector without any
government assistance
• The size of the banking sector: assets to GDP ratio at 82% in 2012
which is below EU average
• The banks are focused mainly on products of classical banking
(corporate and retail loans)
• Loan to deposit ratio is below the 100% threshold and therefore the
sector is not dependent on the external fianncing
• Private debt to GDP ratio is at 76.3% of GDP and is one of the lowest
within the EU
• There is only a very limited risk of debt surprises as banks are well
capitalised
