Issuu

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Slovak Republic The Slovak economy is projected to grow by 4.2% in 2021 and 5.2% in 2022. After a strict lockdown in early 2021, domestic demand will rebound from the second half of the year as vaccines continue to be rolled out and most containment measures are lifted. Investment will accelerate in 2022, aided by EU structural funds and the new EU Recovery and Resilience Facility. Unemployment will fall gradually, but still remain above pre-crisis levels at the end of 2022. Fiscal policy should continue to be supportive until the recovery is firmly underway. EU funds provide an opportunity to implement ambitious structural reforms aimed at addressing long-standing key challenges, provided implementation is timely and efficient. Structural reforms are required to improve the uptake of digital technologies, access to early childhood education, and labour force participation by female, disadvantaged and older workers. Containment measures are being lifted gradually Containment measures were tightened over the winter, reflecting a significant deterioration of the health situation. The government has begun easing some restrictions since April. Non-essential shops have now been reopened and travel bans between districts lifted. The government launched its vaccination programme in December along with other EU countries, and in February included teachers among high priority groups to accelerate the reopening of schools. By mid-May, around 26% of the population had received at least one COVID-19 vaccine dose, and around 12% were fully vaccinated, close to the EU average.

Slovak Republic Retail sales are recovering¹

Car production is picking up Y-o-y % changes, 3-month m.a. 60

Y-o-y % changes 15

Car production New car orders

-20

-5

-40

-10

-60

-15

-80

2013

2014

2015

2016

2017

2018

2019

2020

2018

2019

2020

-20

1. Retail trade excludes motor vehicles and motorcycles. Source: Statistical Office of the Slovak Republic; and OECD calculations. StatLink 2 https://stat.link/nq4yf6

OECD ECONOMIC OUTLOOK, VOLUME 2021 ISSUE 1: PRELIMINARY VERSION © OECD 2021

128 

Slovak Republic: Demand, output and prices 2017

2018

GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Stockbuilding1 Total domestic demand Exports of goods and services Imports of goods and services Net exports1 Memorandum items GDP deflator Harmonised index of consumer prices Harmonised index of core inflation2 Unemployment rate (% of labour force) Household saving ratio, net (% of disposable income) General government financial balance (% of GDP) General government gross debt (% of GDP) General government debt, Maastricht definition (% of GDP) Current account balance (% of GDP)

84.5 47.4 16.0 17.8 81.3 1.7 83.0 80.8 79.3 1.5 _ _ _ _ _ _ _ _ _

2020

2021

2022

Percentage changes, volume (2015 prices)

Current prices EUR billion

Slovak Republic

2019

3.7 3.9 0.1 2.7 2.9 0.4 3.2 4.6 4.0 0.6

2.5 2.7 4.6 6.6 3.9 -0.1 3.8 0.8 2.1 -1.2

-4.8 -1.2 0.3 -12.0 -3.3 -2.4 -5.4 -7.6 -8.5 0.8

4.2 0.1 2.3 1.1 0.8 2.5 3.3 10.2 9.5 0.8

5.2 4.9 0.8 13.7 5.7 0.1 5.7 5.9 6.5 -0.4

2.0 2.5 2.0 6.5 4.9 -1.0 63.8 49.7 -2.2

2.5 2.8 2.0 5.8 4.4 -1.3 63.5 48.2 -2.7

2.4 2.0 2.4 6.7 5.2 -6.1 79.5 60.3 -0.3

1.5 1.1 2.2 7.6 6.1 -6.8 80.3 61.0 0.3

2.1 2.2 2.2 7.2 4.3 -4.1 78.3 59.0 0.0

1. Contributions to changes in real GDP, actual amount in the first column. 2. Harmonised index of consumer prices excluding food, energy, alcohol and tobacco. Source: OECD Economic Outlook 109 database.

StatLink 2 https://stat.link/t2zqki

Economic activity is starting to recover Economic activity in early 2021 was affected by stricter containment measures, with GDP declining in the first quarter. Services were particularly hard hit, with retail sales dropping significantly in the first quarter, more than during earlier lockdowns. Data from electronic cash registers suggest that spending on accommodation, restaurants and other services also declined sharply in the first quarter. Registered unemployment started increasing again in December and gradually edged up until March. However, the manufacturing sector was less severely hit. Car production lost momentum over the winter but started picking up in March. New orders continued to grow. The economic sentiment index and new industrial orders recovered in March. Together with mobility data that shows an increase in people’s movement since early April, this suggests that a recovery is underway.

Policy remains supportive in the near term COVID-19 fiscal support measures with a direct budgetary impact amounted to 1.8% of GDP, and liquidity measures and bank guarantees to 1.6% of GDP. The measures focused primarily on supporting employment, household income, and the purchase of medical supplies. Several measures have been extended in 2021. The job retention scheme has been prolonged until June, and benefits and eligibility to the scheme expanded. The deferral of loan payments for households was extended until April 2021. The draft budget for 2021 also foresees additional spending on climate change mitigation, healthcare, education, and transport infrastructure to strengthen the recovery. The budget also includes a reserve of

 129 2.4% of GDP for covering potential needs due to the pandemic, a 1.3 percentage point increase from last year’s budget. The medium-term fiscal plan foresees a moderate consolidation in 2022, which will be partially offset by the use of grants from the EU Recovery and Resilience Facility, which amount in total to EUR 6 billion (6% of annual GDP) over a five-year period.

The recovery is set to accelerate The economy is projected to grow by 4.2% in 2021 and 5.2% in 2022. Domestic demand is set to remain subdued in the near term, as containment measures are only eased gradually. The recovery in consumption and investment will gain strength in the second half of the year as the vaccine rollout progresses and the economy reopens fully. Exports growth is set to pick up as foreign demand strengthens. In 2022, investment growth will be aided by EU funds and some planned investment projects in the automotive industry. The general government budget deficit will narrow as activity picks up and some emergency measures are phased out. A faster-than-expected vaccination process is an upside risk to the projections. Consumption could also be stronger if the saving rate is normalised faster than assumed. A renewed further deterioration of the health situation due to new variants of the virus would delay the recovery. Supply-chain disruptions, notably related to semiconductor shortages in the automotive industry, also pose negative risks to exports and investment.

The EU funds provide an opportunity to implement ambitious structural reforms Fiscal policy should remain supportive as planned to sustain the recovery in the near term. As the recovery progresses, strengthening active labour market policies, including through re-training measures, is crucial to facilitate workforce reallocation, especially for the young who have been hit hard by the crisis. Particular attention is also needed to female, low-skilled, Roma and older workers, whose labour force participation is low. EU funds provide an opportunity to strengthen the growth potential of the economy and boost productivity and inclusiveness. Planned investments to boost digital technology adoption, pre-school education and school infrastructure, and green growth, notably through building renovations and sustainable transport infrastructure investment, should be implemented without delay.