Look for:

Research Detail

2019/03/13 / Erste Group Research

Slovakia: Growth continues amidst a more cautious outlook and headwinds from abroad


Domestic demand remains behind the GDP steering wheel, aided by good labour market development.

The economy ended last year on a weaker footing; yet overall, 2018 represents a cyclical peak of 4.1%. This year, we expect economic growth to average 3.4%, driven predominantly by domestic demand that continues to benefit from a supportive labour market development. The external environment is likely to remain cloudy (Germany, Euro Area and China slowing down, protectionism, uncertainty stemming from Brexit, and possible impact on local car makers - which the newly started production of Jaguar Land Rover will not make up for).

The slowdown should prove to be temporary. We stick to our 2020 GDP growth forecast of 3.6%.Labour market invigoration is under way as the unemployment rate fell to 6.1% (-1.6pp y/y) in 4Q18 and reached 6.6% on average last year. Employment growth (LFS) sped up to 1.9% y/y at the end of the year, bringing the FY2018 average to 1.4%.

Despite some easing in 4Q18 (5.8% y/y), nominal wage growth averaged 6.2% last year, reflecting tighter labour market conditions. We expect the unemployment rate to drop to 6.3% in 2019, before falling to 5.8% in 2020. Nominal wage growth is likely to average 6.4% this year and could remain close to 6% also in 2020. Inflation is expected to average 2.5% both this year and the next, driven by food, service and energy prices.

Slovak 10Y government bond yields moved lower reflecting more dovish ECB stance. Net inflows of QE stopped in December 2018 but reinvestment of maturing amounts will continue for a substantial amount of time beyond the first rate hike. The recently announced TLTRO3 and changed forward guidance that sees rates at their current level at least until the end of 2019 constitute more easing on the part of ECB. Domestically, macroeconomic conditions and tax collection help to trim the budget deficit, which fell to 0.8% of GDP in 2017.
We see a bumpier pace of consolidation than budgeted, with deficits at 0.8% and 0.7% of GDP in 2018-19, respectively, due to risks regarding the municipalities' performance. Government debt should fall below 50% of GDP already in 2018. Overall, yields on government bonds could increase somewhat; however, more uncertain pace of monetary policy tightening in the US and the first ECB hike being postponed to 2020 have led us to revise our forecast downward. We expect the 10-year Slovak government bond yield at 0.9% at the end of 2Q19 before rising to 1% in the second half of 2019.

PDF Download Download PDF (137kB)

General information

AuthorErste Group Research
Date2019/03/13
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusSlovakia
Currency in focusEuro
Sector in focus-
DownloadPDF (137kB) PDF Download



Accept

We use cookies and web analysis software to give you the best possible experience on our website. By continuing to browse this website, you consent for these tools to be used. For more details and how to opt out of these, please read our Data protection policy.

INFORMATION FOR PRIVATE CLIENTS / CONSUMERS

Any information, material and services regarding financial instruments and securities provided by Erste Group Bank AG or any of its affiliates (collectively “Erste Group“) on this and any linked website hereafter (jointly the “Websites”) shall be exclusively to investors who are not subject to any legal sale or purchase restrictions (the “Interested Party“).

The publication and distribution of information as well as offering and selling of products and services described on the Websites is prohibited by law in some jurisdictions. For this reason, persons in countries in which the publication as well as the offering and selling of products and services described on the Websites are not permitted by law, must not enter the Websites and/or acquire the products displayed on the Websites.

Neither Erste Group nor any third party shall offer access to the Websites or offer the products to especially, but not limited to citizen/residents of the United States and “U.S. person” (as defined in Regulation S under the US Securities Act 1933 as amended), citizen/resident of Australia, Canada, Great Britain and Japan. For this reason, the distribution or redistribution of the information, materials and products into United States, Australia, Canada, Great Britain and Japan or into any other jurisdiction where it is not permitted under the applicable law, as well as to the citizens/residents of these countries shall be prohibited.

The securities displayed on the Websites have not been and will not be registered under the US Securities Act of 1933 and trading in the securities has not been approved for purposes of the US Commodities Exchange Act of 1936. For this reason the securities may, inter alia, not be offered, sold or delivered within the United States or, for the account and benefit of U.S. persons.

The Interested Party is solely responsible to examine, whether he may enter the Websites under the law applicable to it. Erste Group shall not be responsible for the distribution of content of any of the Websites to individuals or entities which provide false information about their right to enter the Websites. For this reason Erste Group shall not be liable for any legal claims or damages which may result from the unauthorized entering or reading of the Websites.

By agreeing to this hereto, the Interested Party confirms that
(i) It has read, understood and accepted this Information and the Disclaimer;
(ii) It informed itself about any possible legal restriction and warrants that it is not restricted or prohibited to enter the Websites according to any law applicable; and
(iii) It does not make available the contents of the Websites to any person who is not qualified by law to enter the Websites.