In the first quarter of 2014, GDP grew by 2,0% and for the whole year Intesa Sanpaolo forecasts that all productive sectors will provide a positive contribution to the dynamics of the product, with the industrial sector leading the acceleration of the economy at 2,1% (2,2% and 2,3% forecasts, respectively, of European Commission and IMF). On the demand side, the estimates speak of a positive contribution to the dynamics of the GDP of domestic demand and the trade balance, thanks to the recovery of private consumption and partly of investments, while the contribution of public demand will be negative. The economy is expected to improve further in 2015, in a forecast scenario subject to downside risks deriving from the political and military tensions that are affecting Ukraine, a fundamental hub for the supply of Russian gas to European countries. In 2013, despite the slowdown, GDP grew by 0,9% thanks to the positive contribution of industry and services, whose dynamics were however weaker than the previous year. The foreign trade balance was the item in the national accounts that gave the greatest positive contribution to the GDP trend, followed by government consumption. The contribution of the demand for private consumption was practically nil, while that provided by the demand for investments was negative. The difficult conditions on the labor market penalized domestic demand, however some positive signals were received from the latest high-frequency indicators.
Inflation stood at 0,4% in December 2013 (1,5% annual average). The decline in the general level of prices continued in the following months and the trend in the consumer price index fell to -0,2% in March 2014. Both external and internal factors contributed to the moderation of this trend. Import inflation has been fairly moderate over the past few months as prices on global oil and food markets have been subdued. Domestically, the absence of further increases in excise duties and regulated energy prices has had a dampening effect on inflation, as has the persistent weakness in domestic demand; however it is expected that the dynamics of wages, albeit modest, could help bring inflation to just above 1,0% at the end of 2014, before a further acceleration in 2015 (2,2% on average for the year) supported by a more vigorous recovery in demand for private consumption.
The composition of the country's economic growth is rebalancing thanks to the ongoing strengthening of domestic demand for private consumption and investment, however Slovakia's competitiveness has not improved significantly in recent years. Indeed on the basis of the Global Competitiveness Index (GCI), an index calculated by World Economic Forum, Slovakia moved between 2011 and 2013 from 69th to 71st place in a ranking of 144 countries. The sectors that most penalize the country's competitiveness are that of infrastructures, which are still not adequate for the needs of the country, and the public sector, with a bureaucratic structure that is not fully efficient. Instead, they are appreciable, continues the Global Competitiveness Report 2013, macroeconomic stability and the quality of the education system. Despite this the greatest element of economic vulnerability of Slovakia is represented by the low diversification of the productive activity, strongly linked to the production of machinery and means of locomotion (over 50% of total exports).
The budget deficit stood at 2,8% of GDP in 2013, down from 4,5% in 2012. Since 2012 the Government has been implementing a series of measures to reduce the public deficit and debt: in 2013, for example, Slovakia has adopted a new progressive taxation system by adding a new 25% personal income tax rate for income above €3.246 per month. They have also been introduced new corporate income taxes increasing the tax rate to 23% from 19% for companies with gross profits above €30 million a year. According to forecasts by the European Commission, the budget deficit will remain broadly stable as a percentage of GDP in 2014 and 2015 (at 2,9% and 2,8% respectively) if the VAT rate is not reduced to 19% from 20% as planned for 2015. Slovakia is currently in the excessive deficit procedure, however it should exit it soon considering that the deficit fell below 3,0% in 2013.
The public debt, which rose to 55,4% of GDP in 2013 from 52,7% the previous year, it is expected to further increase in 2014 (56,3% in the forecasts of the European Commission) and in 2015 (57,8%), without, however, exceeding the 60% threshold outlined in the Slovak constitutional act on fiscal responsibility. Over a medium/long-term horizon, the 2,8% deficit is consistent with a stabilization of the debt below 50% of GDP. The current account surplus rose to 2013% in 2,4, supported by the trade balance surplus, particularly as regards portfolio investment. In the first two months of 2014 the current account still recorded a surplus, however for the entire year it is estimated that the current balance will be slightly negative (-0,3% of GDP) due to the recovery of imports. The current deficit could then widen in 2015 (-2,5% in the EIU forecasts) due to the further growth in imports. In January 2014 Slovakia's gross external debt amounted to 90% of 2013 GDP (it was about 85% of GDP last year). In net terms, the country's financial position in 2012 was negative and equal to 66% of GDP; anyway, over a medium/long-term horizon, the current deficit of 2,5% is consistent with a stabilization of the country's financial position at 50% of GDP. After the leap to 74bp in June 2013, Credit Default Swaps (CDS) fell back to 51bp, well below other CEE countries such as Slovenia (144bp) and Hungary (184bp). Considering the cyclical recovery phase and the economic stability enjoyed by Slovakia, the main rating agencies all evaluate the country positively. Fitch places Slovakia in class A+ and S&P's assigns the country an A rating, while Moody's assigns it an A2 rating.
