Slovakia Business Forecast Report Q2 2013 - New Study Released

New Country Reports market report from Business Monitor International: "Slovakia Business Forecast Report Q2 2013"

by Bill Thompson

(WireNews+Co) - Boston, MA - 19 February 2013

Core Views - 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.

Economic growth is set to moderate in 2013 as production in the key automobile sector stabilises and external demand remains weak. Headline growth disguises the downside risks associated with an overdependence on exports and a narrow industrial base.

Domestic demand growth will remain negligible in the short term as new austerity measures come into force and unemployment remains stubbornly high.

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Major Forecast Changes

We have raised our estimate for the full-year current account surplus in 2012 to 1% of GDP (from a previous 0.7%), as exports continued to outperform in the second half of the year.

The government is front-loading borrowing to take advantage of favourable market conditions where possible. As a result, we have revised our forecast for public debt up to 50.8% of GDP in 2012 and 55% in 2013.

Risks To Outlook

The risks to our growth forecasts lie mainly to the downside due to lingering headwinds in the regional economy, with developments in Germany and the Czech Republic particularly important for the export-driven expansion.

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.

Partial Table of Contents:

Executive Summary

Core Views

Major Forecast Changes

Risks To Outlook

Chapter 1: Political Outlook

SWOT Analysis

BMI Political Risk Ratings

Domestic Politics

Fico's Reforms Pose Moderate Threat To Investment

- The Smer-SD administration has enacted several significant reforms in its first year since returning to power and forming the first oneparty government in modern Slovakia, demonstrating an improvement in policy formation and implementation. However, Prime Minister Robert Fico faces important challenges in 2013 as he attempts to enact significant fiscal consolidation while increasing state control over welfare programmes and maintaining a favourable business environment. New tax hikes and changes to the labour code will threaten investment flows, while also undermining efforts to tackle unemployment.

TABLE: POLITICAL OVERVIEW

Long-Term Political Outlook

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 Ratings

Economic Activity

Growth Outlook Hinges On Exports

- GDP growth slowed to 2.1% in Q312 as signs of a gradual slowdown in economic activity became more evident. While the headline figure is relatively positive amid a regional recession, it hides a heavy dependence on exports from a few key industrial sectors.

TABLE: ECONOMIC ACTIVITY

Balance Of Payments

Current Account Surplus To Shrink In 2013

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