New Market Report Now Available: Slovakia Business Forecast Report Q3 2013

From: Fast Market Research, Inc.
Published: Thu May 23 2013

Prime Minister Robert Fico will continue to benefit from his party's outright majority in parliament, which has eased policy formation and implementation. 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 cause some concern among investors.

Unemployment is set to remain stubbornly high in the coming years, as the economic rebound we expect in 2014 takes time to gain traction. Economic growth will moderate in 2013 as production in the key automobile sector stabilises and external demand weakens. This will complicate government efforts to bring the budget deficit down to 3% of GDP.

Major Forecast Changes

We have lowered our forecast for GDP growth in 2013 to 1.2%, from 2.0% previosuly, as domestic demand remains stagnant and regional headwinds hit export growth.u

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We estimate that state debt hit 52.4% in 2012, up from a previous 50.8%, as the government front-loaded borrowing to take advantage of improved market sentiment. We expect this to rise to 54.7% of GDP in 2013 and hit 56.0% in 2014.

With domestic demand set to remain weak and commodity prices relatively stable, we have lowered our average inflation target for 2013 to 2.4%, from a previous 2.7%.

Risks To Outlook

On the whole, we believe the risks to our short-term growth targets are still tilted to the downside, given ongoing uncertainty over the eurozone economy in the wake of the Cypriot banking crisis and the continuing political deadlock in Italy.

The ongoing uncertainty in the eurozone, the main destination for the vast majority of Slovak exports, also represents a downside risk for export growth, though our expectation for a modest recovery in Germany should cushion the impact of another year of region-wide recession.

The emphasis on revenue-boosting measures to achieve significant fiscal consolidation leaves the deficit reduction programme vulnerable to weaker-than-expected growth, while also threatening investment inflows.

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