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Slovakia Country Risk Reports Q2 2015

Slovakia Country Risk Reports Q2 2015

Core Views

Prime Minister Robert 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, while recent corruption scandals have reinforced this trend. General elections in 2016 are unlikely to give the ruling party another outright parliamentary majority, but the fragmented nature of the opposition suggests it will remain the dominant political force for some time.

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 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 growth led growth of the previous years has translated 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, boosted by falling oil prices, even as economic growth becomes increasingly weighted towards domestic demand.

Major Forecast Changes

No major forecast changes


Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Appeal Of Mainstream Parties To Wane Further
A rejection of mainstream political parties will gather pace in 2015 following the success of independent candidates in 2014, the
fragmentation of the centre-right opposition, and a series of corruption scandals that has damaged the standing of the ruling Smer-SD
party. Nevertheless, Smer-SD remains the most cohesive political force and we expect it to remain in power following general elections
in 2016, albeit with a smaller majority.
TABLE: Political Overview
TABLE: Corruption Perceptions Index
Long-Term Political Outlook
Slow Convergence With West Remains Core View
We expect Slovakia to continue to converge with Western European policies and standards of living over the next ten years as the
small economy has benefitted 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
SWOT Analysis
BMI Economic Risk Index
Economic Activity
Resilient Growth Points To Bright 2015
We forecast Slovak real GDP to expand by 2.8% and 3.2% in 2015 and 2016 respectively, with domestic demand being the engine of
growth. Robust pre-crisis growth rates, driven by positive contributions from net exports and domestic demand, will be unachievable in
the coming year due to the outperformance of domestic demand in Slovakia relative to its developed state trading partners.
TABLE: GDP By Expenditure
Balance Of Payments
Oil To Boost Current Account Surplus
Lower global oil prices will increase Slovakia's current account surplus by an average of 0.5% of GDP per year from 2015-2018 relative
to our previous forecasts. We now forecast a surplus of 1.3% and 1.1% of GDP in 2015 and 2016, but continue to expect a gradual
narrowing of the surplus as Slovak domestic demand outperforms that of its developed state trading partners.
TABLE: Balance Of Payments
Fiscal Policy
Fiscal Risks Well Contained
Despite abandoning some of its more ambitious fiscal targets in 2015 and 2016, the Slovak government remains committed to fiscal
consolidation and public finances remain on a sustainable trajectory. Government borrowing costs will be pinned down over the coming
years as the European Central Bank embarks on a prolonged monetary easing cycle, facilitating long-term debt reduction.
TABLE: Fiscal Policy
Regional Monetary Policy
Q&A On ECB QE
TABLE: European Central Bank – Capital Key for Eurozone Members
Chapter 3: 10-Year Forecast
The Slovak Economy To 2024
Lower Trend Growth Ahead
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 to average 2.6% over our 10-year forecast period, well above eurozone averages.
TABLE: Long-Term Macroeconomic Forecasts
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: Operational Risk
Availability Of Labour
TABLE : Europe – Availability Of Labour Risk
TABLE: Top 10 Source Countries For Migrant Workers
TABLE: Labour Force Employment By Sector (‘000)
Crime Risk
TABLE: Emerging Europe Crime Risks
TABLE: Crime Statistics
Chapter 5: Key Sectors
Autos
TABLE: Aut os Total Mar ket – Hist orical Data & Forecasts
Food & Drink
TABLE: Food Consumpt ion Ind icat ors – Hist orical Data & Forecasts
TABLE: Alc oholic Drinks Value /Volume Sales , Product ion & Trade – Hist orical Data & Forecasts
TABLE: Mas Grocer y Reta il Sales By Format – Hist orical Data & Forecasts
Other Key Sectors
Table: Oil and Gas Sector Key Indicators
Table : Pharma Sector Key Ind icat ors
Table: Infrastructure Sector Key Indicators
Table : Defence & Secur ity Sector Key Ind icat ors
Table: Telecoms Sector Key Indicators
Table : Fre ight Key Ind icat ors
Chapter 6: BMI Global Assumptions
Global Outlook
New Era For Oil
Table: Global Assumptions
Table : Devel oped States , Real GDP Growt H, %
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
Table : Emerg ing Mar kets , Real GDP Growth , %

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