Slovakia

Politics:

• Analysis

  Slovakia politics: Quick View - Latest polling shows buoyant lead for party

  Event

  An opinion poll conducted by the Polis polling agency between November 2nd and 12th shows that Smer-SD's popularity ratings remain high.

  Analysis

  The latest poll indicates that Smer-SD would gain 43.1% of the popular vote if an early election were held (this rating has barely changed since May). More surprising are, however, are the polling results of two new right-wing parties, Ordinary People-Independent Personalities (OL-NO), which would secure around 8% of the popular vote as the second most popular party, according to Polis; alongside a rating of 3.2% for New Majority (registered on October 25th), which has attracted floating voters and members from other right-wing parties.

  The latest poll broadly corresponds with an earlier poll conducted by the MVK agency in late October, particularly in terms of Smer-SD's popular standing and that of OL-NO. Support for the previous party of power, the Slovak Democratic and Christian Union-Democratic Party (SDKU-DS), is low. The MVK poll gives it just 4.8% of the popular vote, below the 5% parliamentary threshold. However, the latest Polis results suggest that support has rebounded slightly during the month of November, and now gives SDKU-DS a 7.8% rating, more in line with previous polls. The party remains deeply divided. A meeting of SDKU-DS's executive committee held on November 17th ended in controversy when two former leading members, Mikulas Dzurinda and Ivan Miklos, rebelled against a new party programme drawn up by the new leadership.

  In a bid to re-align the political right, the leaders of the three main right-wing parties, Bela Bugar (Most-Hid), Jan Figel (KDH) and Pavol Freso (SDKU-DS), have together signed a memorandum of understanding (MoU), on behalf of a new "Peoples' Front", which pledges support between all three parties in the Slovak parliament for creating a liberal-democratic political alternative to Smer-SD. However, in the short term, in the absence of an effective opposition bloc and as right-wing parties continue to reform internal party structures and ideologies, Smer-SD will continue to rule unopposed.

  November 19, 2012

• Background

  Slovakia: Key figures

  Robert Fico (Smer-SD)

  Robert Fico heads Direction-Social Democracy (Smer-SD), which he initially positioned at the centre of the political spectrum, although he has since remodelled it as a social democratic force, successfully integrating most of the small and fragmented left-wing parties. Mr Fico served as prime minister in 2006-10, and is serving as prime minister again in his second term at the helm of a Smer-SD government. He has successfully managed to leverage his status as the country's most popular politician to return to power after a snap parliamentary election in March 2012. In the transition from opposition leader to prime minister, he will have to tread carefully as far as populist or nationalist rhetoric is concerned (particularly on themes such as free-market reforms and welfare spending), so as not to alienate important factions within the party with strong links to business, and so as not to earn Smer-SD the reputation as a party hostile to private business.

  Iveta Radicova (SDKU-DS)

  Iveta Radicova was prime minister for a short period between the general election in June 2010 and the collapse of the previous, centre-right government following a no-confidence vote connected to the euro zone bail-out mechanism in October 2011. She is no longer officially tied to the Slovak Democratic and Christian Union-Democratic Party (SDKU-DS), after she withdrew from politics at the end of her stint as caretaker prime minister in April 2012. A sociologist by profession, she briefly served as labour minister under Mikulas Dzurinda's government of 2002-06. Her conciliatory personality and comparatively moderate stance on economic and social affairs have boosted her popularity ratings, despite the collapse of the centre-right government under her leadership. Ms Radicova showed remarkable resilience in bouncing back from a (narrow) defeat at the presidential election in 2009, and from her resignation in that year from parliament following alleged voting irregularities. Her resilience will be severely tested over the forecast period, particularly in advance of the presidential election scheduled for early 2014. Despite refusing to confirm her candidacy for the election, Ms Radicova will become an important figure for the Slovak centre-right as it attempts to rebuild its political reputation over the forecast period. It will attempt to do this by running several right-wing candidates in the next presidential election, one of whom is likely to be Ms Radicova, in order to institute a replacement for the incumbent, Ivan Gasparovic, who is a known sympathiser of Smer-SD.

  Jan Figel (KDH)

  Jan Figel served as the deputy chair of the Christian Democratic Movement (KDH) for several years, and subsequently served as Slovakia's EU commissioner in 2004-09. In 2009 he returned to domestic politics as the KDH's chair. After the election in June 2010 he became the transport minister, in which capacity he oversaw the handling of EU funds. Following the parliamentary election in March 2012, Mr Figel has resumed the chairmanship of the KDH. On April 4th, at the inauguration of the new parliamentary session, Mr Figel was elected one of four deputies to the new speaker of parliament in a secret ballot voted in by all members of parliament (MPs). During the forecast period Mr Figel will continue to attempt to broaden the appeal of his party, having refused to enter into a coalition with Smer-SD after the recent general election. The KDH is traditionally known for its conservative views on social matters, and it will again become an important focal point for Catholic voters over the forecast period, not least owing to the disappearance of the two leading nationalist parties from the political landscape, which represented a significant proportion of Slovak Catholics during the 1990s. Mr Figel will hope to establish the KDH as the leading party of the centre-right, following the collapse of voter support for the SDKU-DS at the recent election, which has left an ideological vacuum on the right of the political spectrum.

  Igor Matovic (OL-NO)

  Igor Matovic is the founder-leader of a party created in November 2011, Ordinary People-Independent Personalities (OL-NO), which gained 8.55% of the popular vote at the snap general election on March 10th, almost 3% higher than the outgoing party of power, the SDKU-DS. Mr Matovic distinguished himself at the election by capturing more votes than any other right-wing politician. A businessman by profession and educated in the capital, Bratislava, Mr Matovic propelled himself into the political limelight just weeks before the election as the public face of a popular campaign, which escalated into a protest on the streets of Bratislava and called for an end to systemic corruption in politics. He contested the election in June 2010 on the ticket of the liberal Freedom and Solidarity (SaS), led by Richard Sulik, and remained a member of the party. He then became an independent MP, before the creation of OL-NO. As head of OL-NO in parliament, which is now the joint second-largest grouping, Mr Matovic is well placed to lobby for debate and changes to policies presented by Smer-SD during the forecast period. His populism and broad policy agenda makes Mr Matovic a good potential ally for the mainstream opposition parties on the right.

  Lucia Zitnanska (SDKU-DS)

  Lucia Zitnanska, an academic and lawyer by profession, has been a member of the SDKU-DS since 2007, when she became the regional head of the party in Bratislava. She has successfully used this position to rise to the top of the party ranks. In the parliamentary in March 2012 she secured three times as many votes as the outgoing party chair, Mikulas Dzurinda. Under the previous government, led by Ms Radicova, Ms Zitnanska held the post of justice minister, which bolstered her reputation as an opponent of opacity in the judicial sector. Mr Dzurinda has already indicated that he supports Ms Zitnanska as the next head of the party, and as a former member of the KDH she is well acquainted with more traditional right-wing voters. If elected to lead the party, she will be expected to re-establish the SDKU-DS as the main political force of the centre-right.

  April 23, 2012

• Structure

  Slovakia: Political structure

  Official name

  Slovak Republic

  Form of state

  Parliamentary republic

  Head of state

  President of the republic, elected directly; Ivan Gasparovic was re-elected on April 4th 2009

  National legislature

  National Council of the Slovak Republic, with 150 members

  Electoral system

  Universal direct suffrage for party lists; proportional representation, subject to 5% threshold

  National elections

  March 10th 2012 (legislative); April 4th 2009 (presidential); next legislative election due in June 2016 and next presidential election in March 2014

  National government

  The government headed by Robert Fico was appointed by the president on April 4th 2011, which also heralded the start of the new parliamentary session following a snap election on March 10th.

  Main political parties

  Direction-Social Democracy (Smer-SD). Opposition parties: Slovak Democratic and Christian Union-Democratic Party (SDKU-DS); Freedom and Solidarity (SaS); Christian Democratic Movement (KDH); Bridge-Party of Co-operation (Most-Hid); Ordinary People-Independent Personalities (OL-NO).

  Key ministers

  Prime minister: Robert Fico (Smer-SD)

  Deputy prime ministers:

   Robert Kalinak (Smer-SD)

   Peter Kazimir (Smer-SD)

   Miroslav Lajcak (independent)

  Agriculture: Lubomir Jahnatek (Smer-SD)

  Culture: Marek Madaric (Smer-SD)

  Defence: Martin Glvac (Smer-SD)

  Economy: Tomas Malatinsky (independent)

  Education: Dusan Caplovic (Smer-SD)

  Environment: Peter Ziga (Smer-SD)

  Finance: Peter Kazimir (Smer-SD)

  Foreign affairs: Miroslav Lajcak (independent)

  Health: Zuzana Zvolenska (Smer-SD)

  Interior: Robert Kalinak (Smer-SD)

  Justice: Tomas Borec (independent)

  Labour, social affairs & family: Jan Richter (Smer-SD)

  Transport, construction & regional development: Jan Pociatek (Smer-SD)

  Central bank governor

  Jozef Makuch

  March 14, 2013

• Outlook

  Slovakia: Key developments

  Outlook for 2013-17

  • Slovakia is governed by the centre-left Direction-Social Democracy (Smer-SD) in a single-party government. The Economist Intelligence Unit expects Smer-SD to be in government until the next scheduled general election, in 2016.
  • Despite fiscal consolidation, the budget deficit is unlikely to shrink below 3% of GDP before 2014. There is a risk of delay and fiscal slippage unless the government takes steps to implement further cost-cutting measures.
  • Real GDP growth is estimated to have reached 2% in 2012, slowing because of subdued domestic consumption, arising from fiscal consolidation, and the euro zone recession.
  • We forecast that growth will slow to 1.3% in 2013 (revised downwards from our previous forecast of 1.7%) as a result of falling external demand from the euro zone and sluggish aggregate demand.
  • We expect the medium-term outlook for economic growth to remain relatively subdued, with real GDP growth averaging 3.6% per year in 2014-17, in line with a gradual economic recovery in the euro area.
  • EU harmonised inflation reached 3.7% in 2012. It is forecast to average 2.4% per year in 2013-17 as monetary policy is gradually tightened.
  • We forecast that the current account will remain in surplus throughout the forecast period as Slovakia remains a net exporter of goods in high demand.

  Review

  • Recent polls show that the ruling Smer-SD is the most popular party, but the centre-right opposition appears to be gaining political ground.
  • Retail sales fell by 4% year on year in December 2012 and by 1% in 2012 as a whole as aggregate demand remained sluggish and economic sentiment continued to soften.
  • In January the state budget posted a deficit of EUR62.5m on revenue worth EUR840.2m, owing to falling revenue from value-added tax receipts.
  • Working day-adjusted industrial production fell by 4.4% year on year in December, in line with a deceleration in vehicle production.
  • The headline rate of unemployment increased by 0.4 percentage points, to 14.8%, in January, but real wages continued to grow in key sectors such as industry.
  • In 2012 Slovakia posted a record-high foreign trade surplus of EUR3.6bn, up by EUR2.6bn from 2011, owing to resilient export growth, particularly in the first half of 2012.

  March 14, 2013

Economy:

• Background

  Slovakia: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	5.4	Population growth	0.0
  GDP (US$ bn; market exchange rate)	96.2	Real GDP growth	3.7
  GDP (US$ bn; purchasing power parity)	127.0b	Real domestic demand growth	1.6
  GDP per head (US$; market exchange rate)	17,675	Inflation	2.8
  GDP per head (US$; purchasing power parity)	23,340b	Current-account balance (% of GDP)	-3.4
  Exchange rate (av) €:US$	1.39	FDI inflows (% of GDP)	2.0
  a Actual. b Economist Intelligence Unit estimates.

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  Background: The Czech Republic and Slovakia emerged as two separate countries following the dissolution of Czechoslovakia on January 1st 1993. Vladimir Meciar dominated Slovak politics for much of the 1990s. Coalition governments led by Mikulas Dzurinda in 1998-2006 accelerated economic reforms and steered Slovakia towards EU and NATO integration. A populist-nationalist coalition led by Robert Fico, the chair of Direction-Social Democracy (Smer-SD), governed Slovakia in 2006-10. A centre-right coalition consisting of four parties came to power following the parliamentary election in June 2010. This coalition became a caretaker government in October 2011. In April 2012 Smer-SD returned to power in a single-party government, the first in Slovakia's history.

  Political structure: The 150-member National Council (parliament) is elected for a four-year term. Executive power rests with the prime minister. The president, who is directly elected, approves legislation, and wields little domestic political power. Slovakia elected members to the European Parliament in June 2004 and again in 2009. Slovakia is due to assume the rotating presidency of the EU in 2016, which coincides with the next scheduled general election.

  Policy issues: The policy drive has shifted more decisively towards fiscal consolidation. The government will also attempt to narrow the development gap between the regions, and will boost research and development spending to support Slovakia's long-term growth potential. Significant progress in this area still depends on the absorption and availability of EU structural funding.

  Taxation: The rate of value-added tax (VAT) was raised to 20% in January 2011. The flat tax system will be abolished: starting in January 2013, a new 25% tax bracket on personal income tax for employees on higher incomes will replace the 19% rate. New corporation taxes will also be implemented: corporate income tax will rise from the current level of 19% to 23%. The government will continue to rely on direct and indirect taxes for the bulk of its revenue.

  Foreign trade: Slovakia has an open economy, with the sum of imports and exports of goods and services equivalent to nearly 180% of GDP. The current-account deficit reached returned to surplus in 2011, of 0.1% of GDP, boosted by strong exports.

  Major exports 2011	% of total	Major imports 2011	% of total
  Machinery & transport equipment	54.0	Machinery & transport equipment	27.0
  Intermediate manufactured products	19.0	Intermediate manufactured products	15.0
  Miscellaneous manufactured goods	6.1	Fuel	12.0
  Chemicals	3.0	Chemicals	7.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Germany	20.4	Germany	19.5
  Czech Republic	14.5	Czech Republic	18.8
  Poland	7.5	Russia	11.6
  Hungary	7.4	Hungary	7.1

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  January 03, 2013

• Structure

  Slovakia: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 14, 2013

• Outlook

  Slovakia: Country outlook

  Slovakia: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Slovakia has been governed by the centre-left Direction-Social Democracy (Smer-SD), since the March 2012 parliamentary election. Smer-SD has a comfortable majority in parliament, with 83 of the 150 seats (only seven seats short of a constitutional majority), and a strong political mandate. This is the first single-party government since Slovakia became independent in 1993, which reduces the risk of gridlock and bodes well for political stability.

  ELECTION WATCH: The next general election is scheduled for June 2016, in line with constitutional norms. A presidential election is due in March 2014 (the president is elected for a five-year term). Candidates from the centre-right in particular are expected to contest the presidential election in a bid to redress the balance of power between the legislature and the executive--the incumbent, Ivan Gasparovic, is widely perceived as a supporter of Smer-SD.

  INTERNATIONAL RELATIONS: Slovakia's participation in the extension of the euro zone's rescue fund, the European Financial Stability Facility (EFSF), was ratified in 2011. Following parliamentary endorsement of the European Stability Mechanism, the permanent successor to the EFSF, in June 2012, Slovakia has pledged to contribute several instalments to the fund in 2013-14. Slovakia assumes the six-month rotating presidency of the EU in 2016. The government has pledged its support for deeper European integration, which includes the new role shortly to be assumed by the European Central Bank (ECB, the euro area's central bank) in overseeing banks in the euro zone as part of a new banking union. However, the extent of supervisory powers adopted by the European Commission in overseeing national budgets across the euro area remains contentious, as does the creation of a single budget for the euro zone. Nevertheless, Slovakia ratified the EU fiscal treaty in January.

  POLICY TRENDS: The Smer-SD government is in the process of implementing a core package of reforms consisting of 22 separate measures--including a stricter tax regime for income-earners, companies and banks--in addition to other debt-reducing measures, such as new budget constraints on institutions in the public sector. As of January 2013, Slovakia has a new, progressive system of taxation. This replaced the flat system of taxation (set at 19%) with a new 25% rate on personal income tax for those earning in excess of EUR3,246 (US$4,187) per month. New business taxes have also been implemented, including a new corporate income tax of 23% (up from 19%) for companies with gross profits in excess of EUR30m per year, in addition to special taxes on regulated companies in certain sectors (primarily telecommunications and energy). Temporary banking levies on retail and corporate deposits took effect from September 2012. The second (personal account) pillar of the pension system was opened for entry and exit between September 2012 and January 2013. As many as 80,000 out of 1.5m savers left the second pillar, around 20,000 more than expected. In 2013 contributions to the personal pension account will be reduced and diverted to the state budget. Pension contributions to private funds will be cut from 9% to 4%. Lower contributions to the second pillar will mean smaller deficits in the first, pay-as-you-go pension pillar, and will therefore be less of a burden on the budget.

  ECONOMIC GROWTH: Slovakia's growth model is based on the expansion of export capacity through foreign direct investment. Its export-based economy makes it dependent on external demand for durable goods. As an open economy, Slovakia is vulnerable to external economic shocks via the trade and banking channels. The weighted average growth of import demand in Slovakia's top 20 trading partners slowed to 6.5% in 2011, from 12% in 2010, and the Economist Intelligence Unit estimates that it decelerated further in 2012, to 1.6%, owing to the EU recession. Real GDP growth slowed to an estimated 2% in 2012 (from 3.2% in 2011), owing to weakening external demand from the euro zone. A combination of a softening labour market, weak aggregate demand and continuing recession in the euro zone, which will in turn drag down manufacturing performance and export growth in the first half of 2013, will further constrain growth. We forecast growth of just 1.3% in 2013 (revised down from 1.7%, owing to the weakening performance of industry and persistently high unemployment), although we expect growth to accelerate from mid-year as the euro area begins to recover.

  INFLATION: In 2012 inflation reached 3.7%, owing to external pressures arising from high food price inflation. We forecast that inflation will moderate in 2013-17, averaging 2.4% on the EU harmonised measure, in line with the stabilisation of domestic demand and the gradual moderation of energy prices. After decelerating in 2013, owing to weak aggregate demand, we expect a slight uptick in inflation in 2014-15 as consumption growth recovers.

  EXCHANGE RATES: The euro has strengthened as the debt crisis in the euro area has eased, and as global risk tolerance has increased. Sentiment has been shifting away from the US dollar in favour of the euro since the decision by the Federal Reserve (the Fed, the US central bank) in December 2012 to increase its level of quantitative easing. The euro was further supported by the ECB's decision in February 2013 to hold its key policy rate steady. However, we are for now limiting our assessment of the euro's upside potential, particularly as the euro area remains in recession and austerity has yet to hit with full force in some countries. Upward momentum for the euro depends on the stabilisation of the political situation across the euro area, which we expect will start to recover in mid-2013.

  EXTERNAL SECTOR: The trade balance remained impressive throughout 2012, owing to resilient export growth based on strong industrial performance. Following a surplus of 0.1% of GDP in 2011, the surplus on the current account surged in 2012, reaching an estimated 2.3% of GDP. The current account is expected to remain in surplus throughout the forecast period as Slovakia strengthens its position as a net exporter on the back of ongoing investments in the industrial sector for goods in high demand (such as cars). This trend will be facilitated by an uptick in external demand for Slovak manufactured goods after 2014, as the euro area recovers from recession. Despite a gradual rebound in domestic demand, import growth will remain tepid owing to sluggish household consumption, with imports expected to start rising faster than exports only after 2015.

  March 01, 2013

• Forecast

  Slovakia: Country forecast summary

  Country forecast overview: Highlights

  • The centre-left Direction-Social Democracy (Smer-SD) governs in a single-party government after securing a sizeable majority in a snap parliamentary election in March 2012. The right-wing opposition remains fragmented and disorganised.
  • Most of the measures outlined by the government in a 22-point programme, including the abolition of Slovakia's flat tax system, will be implemented in the first half of 2013, in a bid to bring the budget deficit in line with EU norms.
  • The budget deficit is forecast to narrow to within the EU mandated limit of 3% of GDP in 2013. A new constitutional act on budgetary responsibility, which caps public debt at 60% of GDP, and Slovakia's commitment to the new EU fiscal compact, should encourage fiscal prudence in the near term.
  • Owing to its strong economic fundamentals and the resilience of export manufacturing, Slovakia has established itself as one of the leading performers in east-central Europe. However, if the turmoil in the euro area were to intensify in the near term, this would result in a dramatic dip in external demand from core trading partners, and would have severe consequences for the industrial sector, which is the backbone of the economy, and the public finances.
  • The Economist Intelligence Unit estimates that economic growth has slowed to 2.2% in 2012, and forecasts growth of 1.7% in 2013 (revised from 1.9% previously) as recession in the euro zone continues and as fiscal tightening. Real GDP growth is expected to rebound modestly in 2014-17, averaging 3.8% per year.
  • Slovakia's current account is forecast to remain in surplus for much of the forecast period as export growth remains strong (particularly following a recovery among main trade partners after 2013) and as a progressively larger share of services is sourced domestically.
  • We estimate that EU harmonised inflation averaged 3.7% in 2012. We forecast that it will moderate to an annual average of 2.7% in 2013-17 as monetary policy in the euro area remains loose, in line with the bid by the European Central Bank (ECB) to stabilise euro area demand and increase investment to stimulate growth.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	2.2	1.7	3.1	3.4	4.1	4.5
  Consumer price inflation (av; %)	3.7	3.1	2.7	2.6	2.5	2.4
  Budget balance (% of GDP)	-4.7	-3.9	-2.9	-2.7	-1.9	-2.1
  Current-account balance (% of GDP)	2.0	1.4	0.7	0.2	0.1	0.0
  Short term interest rate (av; %)	3.1	3.2	3.6	4.4	4.8	4.8
  Exchange rate US$:€ (av)	1.28	1.29	1.27	1.24	1.26	1.26
  Exchange rate US$:€ (year-end)	1.30	1.28	1.25	1.26	1.26	1.26

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  January 03, 2013

View detailed map

Country Briefing

Land area

49,037 sq km; including 39% agricultural, 41% forest (2009)

Population

5,418,374 (official July 2011 estimate)

Main towns

Population in '000 (end-2008):

 Bratislava (capital): 429

 Kosice: 234

 Presov: 91

 Zilina: 85

 Nitra: 84

 Banska Bystrica: 80

 Trnava: 68

 Trencin: 57

Climate

Continental (warm summers and cold winters)

Weather in Bratislava (altitude 134 metres)

Hottest month, July, 20.4°C; coldest month, January, -1.9°C; driest months, January-April, 39-43 mm average rainfall; wettest month, July, 73 mm average rainfall. Long-term average annual rainfall 611 mm

Languages

Slovak (official), Hungarian

Weights and measures

Metric system

Currency

Euro (€), which replaced the Koruna slovenska (Sk) on January 1st 2009

Fiscal year

January 1st-December 31st

Time

One hour ahead of GMT in winter; two hours ahead in summer

Public holidays

January 1st, March 28th, Good Friday (April 6th in 2012), May 8th, July 5th, August 29th, September 1st, November 1st, December 24th, 25th and 26th

January 03, 2013