Our comprehensive assessment of Slovakia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Slovakia, as well as the latest industry developments that could impact Slovakia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Slovakia before your competitors.
Slovakia Country Risk
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 return to deficit, but eurozone membership and a stable, long-term external funding structure minimise associated risks and ensure a stable balance of payments position.
We believe Slovakia is on a sustainable fiscal trajectory with few immediate risks to its solid sovereign credit profile. Long-term demographic challenges are prominent, however, posing long-term risks.
While the ruling Smer-SD party lost its sole parliamentary majority after the March 2016 general election, we continue to expect broad policy continuity in terms of its...
Slovakia Operational Risk Coverage (9)
Slovakia Operational Risk
Slovakia Operational Risk
BMI View: Slovakia's labour market presents potential investors with some substantial risks, including the high labour taxes which drive up costs for businesses and concerns surrounding the quality of tertiary education in the country. Although compulsory schooling through secondary level helps to improve basic skill levels in the labour market, unemployment is rife and flexibility of the workforce is extremely limited. Overall therefore Slovakia has a moderate Labour Market Risk score of 51.5 out of 100, placing it firmly in 24th position out of 31...
Slovakia Crime & Security
Slovakia Crime & Security
BMI View: Slovakia's stable political and security environment presents relatively few risks for investors with regards to crime and security, as it is not the target of terrorist groups and has low levels of violent crime within its borders. The main threats to investors are associated with corruption and organised crime in the form of fraud and bribery, exacerbated by the perceived corruption within the Slovakian police force. Slovakia therefore receives a high score of 70.0 out of 100 in BMI's Crime and Security Risk Index, placing it in sixth position out of 31 Emerging Europe states.
|Low Crime And Security Risks Compared Regionally|
|Slovakia & Emerging Europe - Crime...|
Slovakia Labour Market
Slovakia Labour Market
BMI View: Slovakia's labour market presents some substantial risks for employers, with underinvestment in tertiary education undermining the long-term potential skill set while in the short-term high labour taxes drive up costs for businesses. Although compulsory schooling through secondary level helps to improve basic skills in the labour market, unemployment is rife and flexibility of the workforce is extremely limited. Overall therefore Slovakia has a moderate Labour Market Risk score of 50.9 out of 100, placing it firmly in 22nd position out of 29 states in the Emerging Europe market and in 82nd position out of 170 countries globally.
Slovakia offers potential investors a labour pool with an excellent literacy rate (at 99%) with the entire workforce having gained at least some level of formal education. Attendance at primary school is...
BMI View: Slovakia's Logistics Risk Index score reflects the potential benefits of the country's relatively well developed transport infrastructure network as well as the risks to investors caused by the high cost of electricity and substantial concerns surrounding water quality and availability. Overall, Slovakia sits roughly in the middle of the Emerging Europe pack, in 17th place out of 31 countries, with a Logistics Risk Index score of 52.2 out of 100...
Slovakia Trade & Investment
Slovakia Trade & Investment
BMI View: Slovakia represents a bright spark in terms of being a highly receptive environment for foreign trade and investment due to its positive economic growth, strong EU demand for autos (the country's key export sector), low tariff barriers to trade, as well as the Slovakian government's highly welcoming approach to FDI. However, high corporate taxation rates and high social security contributions of which companies are required to pay on behalf of their employees, as well as corruption being a notable concern, when operating in the country. Hence, the country scores a respectable 67.1 out of 100 for Trade and Investment Risk, ranking it ninth out of 31 Emerging European countries on BMI's...
Slovakia Industry Coverage (16)
BMI View: A strong consumer outlook underpinned by low interest rates, rising real wages and a strengthening labour market will drive growth of 7.5% in passenger vehicle sales in 2016.
|Accelerating Private Consumption To Drive Passenger Vehicle Sales|
|f = BMI forecast. Source: ACEA, BMI|
A strong labour market and rising disposable incomes will continue driving growth in the passenger vehicle segment.
Growth in e-commerce and energy and...
Slovakia Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Defence & Security
Slovakia Defence & Security
BMI View: We expect Slovakia's defence budget to start rising again - albeit modestly - in 2016, after a period of decline following the global financial crisis. This slight increase will be driven by the need to modernise the Slovak armed forces in order to comply with requirements attached to EU and NATO membership, particularly in terms of efficiency and interoperability. The government is likely to focus spending on the replacement of ageing equipment (primarily in the land segment over the short term, and the aerospace segment over the medium-to-long term), while investment into development of the domestic defence sector will remain limited. Consequently, we expect foreign arms suppliers to capture a large share of the country's defence procurement contracts over the next five years.
Slovakia's domestic defence sector - while substantial in...
Food & Drink
Slovakia Food & Drink
BMI View: We forecast Slovak real GDP to expand by 3.1% and 3.2% in 2015 and 2016 respectively, with domestic demand being the engine of growth. Slovakia's food and drink industry will continue to grow at modest rates. Growth will be facilitated by declining food prices, the introduction of reduced value-added tax on selected foods and growing domestic demand.
Headline Industry Data (local currency)
Per capita food consumption growth 2015 = +3.4% year-on-year (y-o-y); forecast compound annual growth rate (CAGR) to 2019 = +4.0%.
Alcoholic drinks sales growth 2015 = +1.8% y-o-y; forecast CAGR to 2019 = +4.1%.
Soft drinks sales growth 2015 = +2.8% y-o-y; forecast CAGR to 2019 = +3.4%.
Slovakia Freight Transport
BMI View: We forecast growth in the freight sector despite the fact that Slovakia's economy is facing significant headwinds from waning growth momentum in developed eurozone states, which will pose problems for Slovakia's freight mix going forward into 2016. Air freight will show the strongest growth over the next year due to continued consumer spending, followed by rail freight strengthened by infrastructure investment, and inland waterways continuing to grow, but at a slower pace than in 2015. Road freight will continue to post the slowest growth, as rail and inland waterways are taking over some of the momentum.
GDP growth in Slovakia is forecast at 3.2% in 2016, up from 3.1% estimated for 2015. The acceleration in GDP over the last two years has been driven primarily by a recovery in...
BMI View : We have revised up our 2015 forecast for Slovakia's construction industry to 9.7% on the back of historical revisions to the 2014 data, and stronger indicators across the industry. Low borrowing costs, improving demand conditions and strong business confidence should keep investment and credit growth at healthy levels, a particularly promising sign for the construction industry. Public-private Partnerships are likely to grow in prevalence and are set to support our forecasts over the coming years, especially in the road sector, in which we expect to see the strongest growth.
Key developments informing our forecast include:
Highways Projects Back On Course
Our outlook for Slovakia's transport infrastructure sector has improved in...
BMI View: Strong Slovakian household income growth and rising disposable income should support growth in gross written premiums in 2016 and following years. Although a small market that is unlikely to exceed EUR2.6bn by 2020, Slovakia remains one of the better performing markets in the Central and Eastern European region. With the stabilisation of the EUR/USD exchange rate, the sector's growth prospects will attract the attention of foreign investors and new entrants who may be looking to take advantage of a relatively fragmented competitive landscape. The life insurance market will be bolstered by a high savings rate, which is leading to rising interest in pension and retirement products. Meanwhile, in the non-life sector, rising car ownership will spur growth in motor vehicle insurance, while private health insurance will remain small due to the expansion of public...
Slovakia Medical Devices
BMI Industry View: We expect Slovakia to be the fifth fastest growing medical device market in Central & Eastern Europe (CEE) over the 2014-2019 period, as the economy strengthens and health spending remains at a high level. Health spending is high for the region, in per capita terms and as a percentage of GDP. Slovakia will remain heavily reliant on imported medical devices despite the presence of an established medical device...
BMI View: Slovakia's is among the smaller European mining sectors we monitor with activity in the country currently focused on brown coal, produced for domestic energy use, as well as small quantities of gold, residual produce from a once-thriving gold mining industry. The scenario is unlikely to change significantly over the forecast period. However, we note that the Slovak government remain committed to supporting coal miners given that the commodity represents an important source of energy production. We also note the potential for significant expansion in gold mining, should prices remain at a profitable level. Ortac Resources is currently conducting feasibility studies with a view to recommencing mining activities in the country.
Oil & Gas
Slovakia Oil & Gas
BMI View: Slovakia has above-average energy import dependency compared with the regional average. The country remains reliant on Russia, but is actively pushing through several projects aimed at improving bi-directional flows and establishing regional links for a regional gas market in Central and South East Europe.
Slovakia's petrochemicals market will be driven by strong growth from the automotive supply sector, which has prompted downstream converters to ramp up manufacturing capacities. While the country saw a 40,000 tonnes per annum (tpa) increase in low-density polyethylene (LDPE) capacity, it is not expected to see further increases in basic polymers capacities over the next five years.
The Slovakian petrochemicals industry is small by international standards and largely fulfils domestic demand, although it has become more efficient and productive as a result of the consolidation of Slovnaft's petrochemicals operations into MOL and the implementation of a common single-channel polymer sales operation between MOL's TVK and Slovnaft.
By end-2015, Slovakia's petrochemicals...
Pharmaceuticals & Healthcare
Slovakia Pharmaceuticals & Healthcare
BMI View: Improving domestic economic outlook will provide a boost to healthcare expenditure in Slovakia in the short term. Over the longer term, we expect healthcare spending to accelerate, given Slovakia's ageing population and burden of chronic diseases. With public finances on a firmer footing and a centre-left government promising more generous social spending, multinational drugmakers and medical device companies can expect to see growth in revenues from Slovakia.
Headline Expenditure Projections
Pharmaceuticals: EUR1.91bn (USD2.10bn) in 2015 to EUR1.97bn (USD2.12bn) in 2016; +2.8% in local currency terms and +0.6% in US dollar terms. Forecast revised slightly downwards from last quarter.
BMI View: The medium term outlook for Slovakia's power sector is quite encouraging. With two new nuclear reactors set to come on stream in the next couple of years, there should be a 29% increase in total generating capacity by the end of 2018, relative to our core forecast for the end of 2016. After that, generation is likely to plateau, given the absence of any significant new projects in the pipeline, a possible modernisation of the Vojany thermal station aside. Consumption should pick up from 2016, in a context where it has been constrained by weak manufacturing demand, although strong consumer demand has been providing -...
Slovakia Real Estate
BMI View: A strengthening economy has seen the strength of the real estate market sustained. Links with neighbouring countries in both trade and investment has ensured growth in all three segments of the commercial real estate market in 2015. We expect to see little change in the face of each sector in terms of new supply over the course of 2016, although from 2017 it is likely that modern premises in secondary locations will be in demand as tenants look to establish operations outside the saturated major cities.
We maintain an upbeat view on Slovakian growth potential despite rising uncertainties with regards to the global economy. From an estimated 3.1% in 2015, we forecast real GDP growth of 3.2% and 3.0% in 2016 and 2017 respectively. GDP will be driven by domestic demand, as net exports make a negative contribution to growth, although the export sector will remain a crucial driver of...
BMI View: Slovakia's broadband sector is witnessing strong growth on the back of investments in next-generation wireless and wireline networks and the demand for multi-play services. This will lead to the outperformance of telecoms service providers offering convergence services in volume and value terms. There is little long-term scope for newcomer SWAN to significantly disrupt existing market dynamics.
|In A Saturated Market, Mobile-Only SWAN Lacks Appeal|
|Slovakia Mobile Market Forecasts|
BMI View: The Slovakian water sector is still in need of systemic investment, which presents opportunities for water infrastructure companies looking to become involved in Slovakia's underdeveloped wastewater and sanitation sectors.
We have expanded our forecasts this quarter to include a new datasets for the Slovakian water sector on water losses and households connected to the mains networks. We have also substantially revised our existing forecasts in the wake of the release of new historical data.
There has been little in the way of developments with regards to new projects in Slovakia. The current government focus is on improving water security and repairing flood damage, rather than on the development and modernisation of general water infrastructure. In particular, the incumbent government is...