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
A fragmented opposition, strong economy, increased social spending and perceived security threats stemming from the EU migrant crisis have all boosted the electoral chances of the governing Smer-SD party, which stands a good chance of regaining its absolute parliamentary majority following the March 2016 general election.
Although the government will have to maintain a relatively tight fiscal stance in light of looming constitutional debt brakes, 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.
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 and Emerging Europe Crime and...|
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's free market economy and welcoming attitude to foreign direct investment (FDI) ensure that there are few regulatory restrictions facing foreign investors. The country boasts a number of opportunities in its manufacturing and consumer sectors, buoyed by economic growth which is expected to outperform eurozone peers. Access to financing is strong due to a stable banking sector which enjoys high levels of public trust and adequate capital buffers. However, corruption in all areas of government and uneven progress on bureaucratic reforms continue to pose risks...
Slovakia Industry Coverage (16)
BMI View: Ongoing Investments in vehicle production facilities will lead to strong growth in passenger vehicle production levels over our forecast period 2016-2019, with average growth of 6.5%. In addition, rising household income and consumption levels will drive passenger vehicle sales over our forecast period.
|* Vehicle production will grow 5.7% in 2016|
|* Vehicle production growth will be driven by Investments into new vehicle production facilities...|
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: The insurance market in Slovakia is one of the more developed in the Central and Eastern Europe region and benefits from the strong presence of major regional and global insurers, which bring high levels of expertise and capitalisation to the industry. Both the life and non-life insurance sectors are expected to grow throughout our forecast period, benefiting from wider economic growth in the country and relatively high levels of disposable income, although we do note that currency movements against the strengthening US dollar will result in a short-term contraction in premiums written when measured in US dollar terms.
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 mining industry is small relative to most other European markets. It is expected to remain as such through to the end of our 2015-2019 forecast period, with lignite production continuing to dominate overall output. Growth during this period will be undermined by the weakness in global commodity prices, which threaten to delay existing projects. However, we note longer-term growth potential in certain sub-sectors including gold and possibly uranium.
Slovakia's mining sector is currently one of the smallest in Europe,...
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: Despite Slovakia's declining disease burden, multinational drugmakers will continue to target the country given the sizeable proportion of non-communicable diseases. Slovakia's cardiovascular drug market will prove to be the most lucrative, with cardiovascular diseases accounting for over half of deaths and the highest share of drug spending.
Headline Expenditure Projections
Pharmaceuticals: EUR1.85bn (USD2.46bn) in 2014 to EUR1.91bn (USD2.10bn) in 2015; +3.5% in local currency terms and -14.5% in US dollar terms. Forecast unchanged from last quarter.
Healthcare: EUR6.08bn (USD8.09bn) in 2014 to EUR6.29bn (USD6.91bn) in 2015; 3.4% in local currency terms and -14.5% in US dollar terms. Forecast revised slightly upwards from last...
BMI View: The short-term outlook for Slovakia's power sector is relatively weak, with declining output from thermal and coal generation leading to an overall contraction in total generation in 2015. The expansion of nuclear power does mean, however, that from 2016 onwards we expect to see substantial increases in total generation in Slovakia, with nuclear generation expected to increase by nearly a quarter in 2016 alone. The power infrastructure project pipeline remains dominated by nuclear power at present, with few other investments on the horizon, though there is scope for expansion of hydropower should agreements with neighbouring states prove successful.
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...