Slovakia has a long tradition in the engineering, chemical, wood-processing and food industries. However, in recent years, the industrial sector has undergone significant transformation, and new sectors have emerged. Today, Slovakia, in a short period, has become one of the world’s technological leaders in the automotive industry. Car manufacturers, such as PCA, KIA and Volkswagen have established plants in the Slovak territory. Additionally, proud of its industrial base, including the electronics sector, Slovakia focuses nowadays on the promotion of production and related services of high-added value, such as the SSC (Shared Services Centres) and ICT (Information and Communications Technologies) sectors and R&D projects.
Source: http://www.sario.sk
Indicative is the fact that in the last few years, global corporations have chosen Slovakia for their expansion in the CEE region (e.g. recently Jaguar-Land Rover which is building a plant in Nitra, to begin production in 2018; this investment project has been the largest business case in Europe in recent years).
In fact, the Industrial sector’s growth, is reflected in its sizable contribution (24.3%) to the overall country’s Gross Domestic Product (GDP), followed by that of “Trade, Accommodation and Food services” (12.6%).
The Slovak economy developed beyond expectations during the period 2000-2007, managing to reach a 10.8% growth, in 2007. However, the effects of the global financial crisis, became apparent a year later (2008), when the GDP growth rate dropped to 5.6%, hitting its lowest minimum of -5.5% a year later, in 2009. Having turned to positive figures from 2010 onwards, real GDP growth has more than doubled since 2013, reaching 3.6% in 2015 (see chart below). This is the highest increase since 2010, attributed to the increased domestic demand (as part of the increased investments), as well as to the better performance of the automotive industry.
In 2016, as was forecasted, due to lower public investment –as the recent cycle of EU investment co-funding has been completed-, GDP growth slightly decreased to 3.2%. However, in the next few years, growth is expected to expand over 3.6%, driven by the increased household consumption, new investments and net exports.
Having accomplished significant economic reforms since its separation from the Czech Republic in 1993, Slovakia has turned to be a small, but export oriented economy, with exports (at about 93% of the GDP in recent years) serving as the main driver of the country’s growth.
Despite the high foreign trade deficits recorded at the beginning of the 1990s, the government’s measures supporting exports started to flourish at the start of the 2000s. Under such effects, imports were decreased, leading to positive trade balances. Today, Slovakia manages, even at low levels, to preserve its trade surpluses (see chart below).
More specifically, in 2015, the trade surplus was US $2.1 billion, while imports decreased at a lower rate than exports, when compared to the previous year. This is attributable mainly due to two reasons; the imports of goods were affected by the growth of import-intensive investments related to an increased draw-down of EU funds and due to continuing investments in the automotive industry. Moreover, increased household consumption, also influenced the resulting balance.
Slovakia’s major exports include vehicles and their components, electrical machinery and appliances, plastics and relevant products. These products are mainly directed to the EU (85%) and more specifically to Germany, the Czech Republic, Poland, Austria, France, Italy and the UK. Considering opportunities arising in new markets, Slovakia focuses on increasing its market share in Asia, the Balkans, Russia, Ukraine, Belarus and Kazakhstan.
On the other side, Slovak imports in 2015 were dominated by machinery and electrical appliances, vehicles and related components, nuclear reactors and furnaces, fuel and mineral oils.
The majority of imports for 2015 were sourced from Germany, the Czech Republic, Austria, Hungary, Poland, South Korea, Russia and China.
Authorities of the Slovak Republic have faced persistently high levels of unemployment. During the period 1996-2011, the Slovak unemployment rate, averaged some 14.8%.
Measures taken by the government in recent years, including in the direction of foreign investments to regions with high unemployment rates, as well as the development of university courses matching the needs of the markets/sectors with strong growth potential, have all helped towards the increase of employment and therefore the reduction of long term unemployment.
In 2015, the labour market continued to recover, with job vacancies reaching historical maximum values. In fact, the unemployment level dropped by 1.7% to 11.5%, contributing to the significant decrease of the long-term unemployment.
While labour market conditions will further improve, forecasts indicate a further decline of the Slovak unemployment rate, to below 10% in 2017.
Due to its geostrategic location (in the heart of Central Europe), its relatively low-cost and highly-skilled labour force, political & economic stability and reasonable tax rates - introduction of a flat 19% tax in 2004 which created a new wave of investments-, Slovakia has attracted many investors. As mentioned above, its membership in the European Union (2004) and the adoption of the Euro currency (2009), have all contributed to a boom of investments in recent years.
In 2006, FDI inflows reached US $ 5.7 billion, to drop 3 years later to US $1.52 billion (affected by the increased risk perception, due to the financial crisis). Nevertheless, in 2011 increased investments took place in the country and after a significant fall in 2014 (US -$0.36 billion), investors’ confidence in Slovakia, seems to have bounced back as US $1.15 billion were invested in the local economy in 2015.
During the period 2002-2015, the majority of successful investment projects, derived from Germany, South Korea, the US, Austria, Denmark and Italy (See chart below), while some €330 million investment projects have successfully been completed, in 2015.
However, increases in corporate taxes, unpredictable regulatory framework oversights (e.g. in the energy field), and Labour Code changes, may affect negatively the investment climate in the Slovak Republic, in the next few years.
The 2015 general government deficit was reduced to 2.7% of GDP, while it has been forecasted that the deficit would further decrease to 2.2% of GDP by the end of 2016, supported by the robust income tax receipts and the steady growth in personal income taxes and social contributions.
In addition, according to the World Economic Forum, Slovakia ranked in 65th position out of 138 countries, in the 2016-2017 Global Competitive Index (GCI), two positions higher than the respective ranking in the GCI for 2015-2016, proving the progress achieved regarding the competitiveness of the Slovak Republic. Finally, according to 2016 data, Slovakia received an “A+” credit rating from both S&P and Fitch.