Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation[1]with the Slovak Republic on March 6, 2024.
The economy slowed in 2023, as the drawdown of pandemic-era savings ran its course and negative real wage growth weighed on consumption. This was partially offset by strong fiscal stimulus reflecting an increase in social spending and measures to offset the impact of higher energy prices, as well as record-high EU-funded public investments. Inflation has declined from record-highs in early 2023 but remains among the highest in the euro area.
Growth is forecast to increase to 2.1 and 2.6 percent in 2024 and 2025, while inflation is projected to continue moderating and return to target by end-2026. Consumption is projected to rebound as a pick-up in real wage growth boosts disposable income, while exports will continue recovering as supply conditions improve, offsetting the impact of a deceleration in EU-funded public investment. Slovakia's unfavorable demographics will weigh on medium-term growth. Risks are tilted firmly to the downside including from weaker external demand, commodity price shocks, delays in fiscal consolidation, slow implementation of structural reforms, and failure to absorb EU grants effectively.
Executive Board Assessment[2]
Executive Directors welcomed the resilience of the Slovak economy and looked forward to the envisaged stronger growth in 2024. Directors noted that while the outlook is broadly favorable, it is clouded by high inflation and significant downside risks, including from a global slowdown and intensifying geopolitical tensions, as well as longstanding structural and demographic challenges.
Directors highlighted the need to prioritize fiscal sustainability and implement structural reforms to foster economic diversification, inclusive growth, and green transition.
Directors underscored the need for sustained commitment to fiscal consolidation, stressing the importance of putting debt on a downward trajectory, rebuilding buffers, and preparing for the increase in aging‑related spending. A more ambitious fiscal consolidation in 2024, coupled with clearly identified revenue and expenditure measures in the years ahead, should underpin these efforts. Directors encouraged the authorities to consider raising the basic VAT rate as well as property and environmental taxes, and agreed on the need for better targeted social spending and reduction in subsidies. Reforming the fiscal framework would help strengthen fiscal transparency and credibility and boost the longer‑term outlook for public finances.
Directors welcomed the resilience of the financial sector and considered the current macroprudential stance appropriate. However, vulnerable segments of the credit portfolio, including the commercial real estate sector and low‑income households, should be closely monitored. Adding macroprudential measures targeted at the commercial real estate sector might be warranted. Directors also agreed that the authorities should stand ready to release the countercyclical capital buffer if downside macro‑financial risks materialize. Addressing remaining deficiencies in the AML/CFT framework and strengthening the resilience of the financial system to cyber‑attacks should also be prioritized.
Directors urged the authorities to continue the implementation of the national Recovery and Resilience Plan to raise inclusive and climate friendly growth. They emphasized the need for effective labor market policies to raise labor force participation of women and seniors. Directors agreed that increased infrastructure investments, including through better absorption of EU funds, the maintenance of good governance and a favorable investment climate, and educational reforms would help lift the economy's growth potential, reduce regional inequality, and foster inclusion of minorities. They commended the authorities for the significant progress in reducing greenhouse gas emissions and welcomed the implementation of the 2023 National Energy and Climate Plan.
Slovak Republic: Summary of Economic Indicators, 2019−29 |
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2019 |
2020 |
2021 |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
|
Est. |
Projections |
||||||||||
(Annual percent change, unless otherwise indicated) |
|||||||||||
Output/Demand |
|||||||||||
Real GDP |
2.5 |
-3.3 |
4.8 |
1.8 |
1.1 |
2.1 |
2.6 |
2.8 |
2.7 |
2.7 |
2.7 |
Domestic demand |
3.8 |
-5.1 |
5.6 |
2.9 |
-4.7 |
5.3 |
2.2 |
2.5 |
2.4 |
2.4 |
2.4 |
Public consumption |
4.5 |
-0.6 |
4.2 |
-4.2 |
-1.5 |
1.8 |
-0.8 |
1.4 |
1.5 |
2.7 |
2.5 |
Private consumption |
2.7 |
-1.3 |
2.8 |
5.6 |
-1.7 |
2.2 |
1.6 |
1.8 |
1.8 |
1.8 |
1.8 |
Gross fixed capital formation |
6.7 |
-10.9 |
3.5 |
4.5 |
5.7 |
3.1 |
3.9 |
3.8 |
3.9 |
3.6 |
3.6 |
Exports of goods and services |
0.8 |
-6.4 |
10.4 |
3.1 |
0.3 |
3.6 |
3.6 |
3.4 |
3.4 |
3.4 |
3.4 |
Imports of g oods and services |
2.2 |
-8.3 |
11.6 |
4.5 |
-5.8 |
7.1 |
3.2 |
3.2 |
3.2 |
3.1 |
3.1 |
Potential Growth |
2.9 |
-0.2 |
0.8 |
1.2 |
1.2 |
2.0 |
2.3 |
2.7 |
2.7 |
2.7 |
2.7 |
Output gap |
1.1 |
-3.1 |
-1.0 |
-0.4 |
-0.5 |
-0.4 |
-0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
Contribution to Growth |
(Percent) |
||||||||||
Domestic demand |
3.8 |
-4.9 |
5.5 |
2.9 |
-4.7 |
4.9 |
2.1 |
2.4 |
2.3 |
2.3 |
2.2 |
Public consumption |
0.8 |
-0.1 |
0.8 |
-0.8 |
-0.3 |
0.3 |
-0.1 |
0.2 |
0.2 |
0.4 |
0.4 |
Private consumption |
1.5 |
-0.7 |
1.6 |
3.1 |
-1.0 |
1.2 |
0.9 |
1.0 |
1.0 |
1.0 |
1.0 |
Gross fixed capital formation |
1.4 |
-2.4 |
0.7 |
0.9 |
1.2 |
0.7 |
0.8 |
0.8 |
0.9 |
0.8 |
0.8 |
Inventories |
0.1 |
-1.7 |
2.4 |
-0.3 |
-4.6 |
2.7 |
0.5 |
0.3 |
0.2 |
0.1 |
0.1 |
Net exports |
-1.3 |
1.6 |
-0.7 |
-1.2 |
5.8 |
-2.9 |
0.5 |
0.4 |
0.4 |
0.4 |
0.5 |
Prices |
|||||||||||
Inflation (HICP) |
2.8 |
2.0 |
2.8 |
12.1 |
11.0 |
3.6 |
3.9 |
2.5 |
2.0 |
2.0 |
2.0 |
Inflation (HICP, end of period) |
3.3 |
1.7 |
5.0 |
15.0 |
6.6 |
3.8 |
3.4 |
2.0 |
2.0 |
2.0 |
2.0 |
Core inflation |
2.5 |
2.4 |
3.4 |
10.4 |
11.4 |
4.6 |
3.3 |
2.5 |
2.0 |
2.0 |
2.0 |
Core inflation (end of period) |
2.8 |
2.2 |
5.5 |
13.7 |
6.8 |
4.8 |
2.7 |
2.0 |
2.0 |
2.0 |
2.0 |
GDP deflator |
2.5 |
2.4 |
2.4 |
7.5 |
10.1 |
4.8 |
3.9 |
2.4 |
2.0 |
2.0 |
2.0 |
Employment and Wages |
|||||||||||
Employment |
1.0 |
-1.9 |
-0.6 |
1.8 |
0.3 |
0.3 |
-0.1 |
-0.4 |
-0.4 |
-0.4 |
-0.4 |
Unemployment rate (Percent) |
5.7 |
6.6 |
6.8 |
6.2 |
5.9 |
5.9 |
5.9 |
5.9 |
5.9 |
5.9 |
5.9 |
Nominal wages |
7.8 |
3.7 |
6.8 |
7.8 |
8.5 |
8.0 |
6.9 |
5.0 |
4.3 |
4.3 |
4.3 |
Public Finance, General Government |
(Percent of GDP) |
||||||||||
Revenue |
39.3 |
39.4 |
40.2 |
39.8 |
41.5 |
41.0 |
40.0 |
39.3 |
38.9 |
38.9 |
39.0 |
Expenditure |
40.5 |
44.8 |
45.6 |
42.3 |
47.9 |
47.0 |
46.2 |
44.8 |
44.6 |
44.6 |
44.5 |
Overall balance |
-1.2 |
-5.4 |
-5.4 |
-2.4 |
-6.5 |
-6.0 |
-6.1 |
-5.6 |
-5.7 |
-5.7 |
-5.6 |
Primary balance |
-0.2 |
-4.3 |
-4.5 |
-1.7 |
-5.6 |
-5.0 |
-4.9 |
-4.2 |
-4.3 |
-4.4 |
-4.2 |
Structural balance (Percent of potential GDP) |
-1.7 |
-2.2 |
-1.6 |
-1.4 |
-4.4 |
-5.3 |
-5.6 |
-5.6 |
-5.7 |
-5.7 |
-5.6 |
General government debt |
48.0 |
58.9 |
61.1 |
57.8 |
57.9 |
59.3 |
60.3 |
63.5 |
66.7 |
69.8 |
72.5 |
Monetary and Financial Indicators |
(Percent) |
||||||||||
Credit to private sector (Growth rate) |
6.6 |
4.8 |
7.6 |
10.2 |
3.2 |
4.9 |
7.1 |
5.8 |
5.2 |
5.2 |
5.2 |
Mortgage lending rates |
1.4 |
1.1 |
1.0 |
2.0 |
3.8 |
… |
… |
… |
… |
… |
… |
Government 10-year bond yield |
0.2 |
-0.1 |
0.0 |
2.2 |
3.7 |
3.7 |
4.2 |
3.8 |
3.7 |
3.7 |
3.6 |
Balance of Payments |
(Percent of GDP) |
||||||||||
Trade balance (goods) |
-1.2 |
1.1 |
-0.5 |
-6.0 |
0.1 |
-2.4 |
-1.9 |
-1.6 |
-1.3 |
-1.0 |
-0.7 |
Current account balance |
-3.3 |
0.6 |
-2.5 |
-8.2 |
-1.7 |
-4.3 |
-3.6 |
-3.1 |
-2.7 |
-2.2 |
-1.9 |
Gross external debt |
112.3 |
119.6 |
134.2 |
103.1 |
99.5 |
100.7 |
101.2 |
102.5 |
103.8 |
104.6 |
105.1 |
Saving and Investment Balance |
(Percent of GDP) |
||||||||||
Gross national savings |
20.5 |
20.0 |
19.7 |
15.2 |
15.3 |
16.3 |
17.6 |
18.7 |
19.3 |
20.0 |
20.6 |
Private sector |
18.4 |
21.9 |
22.0 |
14.3 |
16.9 |
18.7 |
19.8 |
21.4 |
22.3 |
22.9 |
23.6 |
Public sector |
2.1 |
-1.9 |
-2.3 |
0.9 |
-1.6 |
-2.5 |
-2.3 |
-2.8 |
-3.0 |
-2.9 |
-2.9 |
Gross capital formation |
23.8 |
19.4 |
22.2 |
23.4 |
17.1 |
20.5 |
21.2 |
21.7 |
22.0 |
22.2 |
22.5 |
Memo Item |
|||||||||||
EU grants (Percent of GDP) |
1.0 |
1.2 |
1.2 |
1.3 |
2.6 |
1.2 |
1.5 |
1.3 |
1.0 |
1.0 |
1.0 |
Energy support measures (Percent of GDP) |
0.0 |
0.0 |
0.0 |
0.1 |
2.3 |
1.0 |
0.0 |
0.0 |
0.0 |
0.0 |
1.0 |
Nominal GDP (Millions of euros) |
94,430 |
93,444 |
100,256 |
109,645 |
122,114 |
130,572 |
139,175 |
146,498 |
153,399 |
160,613 |
168,203 |
Sources: National Authorities; and IMF staff estimates and projections. |
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[1]Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summing's up can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
