Our comprehensive assessment of Slovakia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Slovakia, as well as the latest industry developments that could impact Slovakia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Slovakia before your competitors.

Country Risk

Slovakia Country Risk

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Core Views

  • Prime Minister Robert Fico will continue to benefit from his party's outright majority in parliament, which has eased the policy formation and implementation process. While this is positive for political stability in the short term, it does not provide much space for consensus politics, with Fico's tax and welfare reforms likely to keep investors cautious.

  • Fico's failed bid for the presidency in March 2014 is a sign of growing voter wariness of single-party rule and mainstream political parties, with general elections in 2016 unlikely to give the ruling party another outright parliamentary majority.

  • Although Slovakia has been released from the European Commission's Excessive Deficit Procedure, the government will have to maintain a relatively tight fiscal stance in light of rising public debt loads and looming constitutional...

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Slovakia Operational Risk Coverage (9)

Slovakia Operational Risk

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Slovakia has long been considered one of the success stories in Eastern Europe, with extensive infrastructure and economic development in the country since it gained independence helping to attract and sustain foreign direct investment (FDI). The country benefits from a range of connections to international financial markets, high volumes of FDI and few barriers to trade, and both the import and export markets are well developed. There are some key risks, however, including high levels of labour tax which increase business costs substantially, low flexibility of labour and limitations in the transport network. Overall, therefore, we have awarded Slovakia a total Operational Risk Index score of 64.0 out of 100. This puts the country in eighth place out of 30 countries in the Emerging Europe region and 35th globally out of 170 countries.

Slovakia's highest composite score across the four operational risk sectors is for Security, where the...

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Slovakia Crime & Security

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BMI View: Overall  Slovakia is generally considered to be a safe environment for businesses, employees and foreign visitors, with a Crime and Security Risk Index score of 80. 1 out of 100. This places the country in 3rd position in the Emerging Europe region, and in 19 thposition globally, making Slovakia a comparatively attractive investment destination. In Emerging Europe, Slovakia is ranked only behind Lithuania and Slovenia and is ahead of neighbouring Czech Republic, Poland, and Hungary. The country performs well on various global safety and peace rankings, including the 2013 Global Peace Index which put the country in 33rd position globally, behind the Czech Republic (14 th) and Hungary (...

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Slovakia Labour Market

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BMI View : Slovakia's labour market presents some substantial risks for employers, with underinvestment in tertiary education undermining the long-term potenti al skill set while in the short- term high labour taxes drive up costs for businesses. Although compulsory schooling through secondary level helps to improve basic skills in the labour market, unemployment is rife and flexibility of the workforce is extremely limited. Overall therefore Slovakia has a moderate Labour Market Risk score of 56. 5 out of 100, placing it firmly in the middle of the Emerging Europe market and in 50 thposition out of 170 countries globally.

The biggest risks for investors stem from Slovakia's high labour costs, where the country records some of its poorest risk...

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Slovakia Logistics

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BMI View: Slovakia's Logistics Risk Index score reflects the country's relatively well developed transport infrastructure network (with over 43,700km of roads, almost 4,000km of railways, two river ports and several international airports) as well as the risks to investors caused by the high cost of electricity and fuels and substantial concerns surrounding water quality and availability. Slovakia lands in the middle of the Emerging Europe pack, in 1 4 th place out of thirty countries, with a Logistics Risk Index score of 5 1.3 , enough to earn it a global ranking of 79th out of 170 countries, behind all of its immediate neighbours with the exception of Ukraine.

Investment in the country's transport...

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Slovakia Trade & Investment

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BMI View : High levels of corruption in the government and excessive bureaucracy serve to lower Slovakia's score in this sector, leaving investors facing difficulties when bidding for public contracts and extensive delays when opening and closing businesses. These risks are in some way offset by foreign market accessibility and an active credit market. The country's overall Trade and Investment Market Risk Index score is therefore 67. 7 , putting it eighth regionally and 34th globally , which suggests that Slovakia offers potential investors a relatively competitive business environment.

In Slovakia, the key downside risk to investors is the low level of capital and financial accounts as a percentage of GDP, which gives Slovakia its...

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Slovakia Industry Coverage (16)

Autos

Slovakia Autos

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Vehicle sales in Slovakia decreased 3.8% in 2013, on the back of weakness in the passenger car and commercial vehicle (CV) segments. In 2014, we forecast an upswing in total sales of 9.4% as the economy recovers somewhat.

BMI maintains a bullish view for private consumption growth in the country in 2014; economic conditions are in the 'sweet spot' for households, as labour market conditions are improving while inflation and interest rates remain very low. This has bolstered real wage growth and consumer confidence, coinciding with a sustained uptrend in retail sales volume. We expect this to continue to drive passenger car sales growth, and we forecast a 9% increase in this segment over the full year.

In 2014, BMI forecasts an increase of 8.2% in light commercial vehicle (LCV) sales and a 15% surge in the heavy truck segment. Despite these relatively bullish forecasts,...

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Commercial Banking

Slovakia Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Slovakia Defence & Security

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BMI expects to see defence spending in Slovakia in 2013 to increase 7.5% over 2012 levels, to some US$1,089mn. This constitutes 1.1% of GDP.

NATO members are theoretically required to allocate at least 2% of GDP to defence purposes, but, Slovakia looks set to maintain levels well below that for the foreseeable future. Indeed, we forecast defence spending as a percentage of GDP to remain around 1.0-1.1% over the remainder of our 2017-forecast period.

This lack of spending has been harshly criticised by the Slovakian minister of defence. Minister Lubomir Galko warned that the Slovakian army is beginning to break down under the strain of Afghan deployment and minimal defence spending. The right-wing Slovakian government which governed prior to 2006 had adopted the Model 2015 plan, aiming for 1.85% of GDP being spent on defence by 2015, but even this modest target was abandoned under the Fico...

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Food & Drink

Slovakia Food & Drink

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Though household consumption has recovered slightly over recent quarters, we remain fairly cautious in relation to Slovakia's near-term discretionary spending in the food and drink sector. We forecast unemployment to fall to 12.5% in 2014, the first time the rate has fallen below 14% since 2010. We expect the recovery in household spending to gain traction, and hold our forecast for private consumption growth in 2014 at 2.0%, up from -0.6% and 0.2 the last two years. This implies a significant one percentage point contribution to headline growth, which has relied solely on external demand since the economic crisis hit. We forecast this increase in private consumption to translate to a 3.1% increase in total food consumption through 2014.

Headline Industry Data (local currency)

  • 2014 per capita food consumption growth = +3.05% year-on-year (y-o-y); forecast compound annual growth rate (...

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Freight Transport

Slovakia Freight Transport

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The 2013 growth forecast for Slovakia was raised to 0.8% from the 0.5% estimated in June by the Finance Ministry. The move is attributed to an improvement in the euro region after six quarters of declines. The rebound has led to a rise in demand for exports, such as cars assembled by the Slovak unit of Volkswagen Group, which will provide welcome news for Slovakia's freight industry.

The improved growth forecast is also supported by an increase in household spending, which was driven by falling inflation and rising consumer confidence. Meanwhile, the ministry has kept the forecast for 2014 growth unchanged at 2.2%, but expects it to rise to 2.9% in 2015.

Emerging Europe as a region faces increased competition from periphery eurozone to capitalise on improving external demand into 2014. Regional economies best placed to meet this challenge are those which have made significant...

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Infrastructure

Slovakia Infrastructure

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BMI Industry View

BMI View: Slovakia appears to be stabilising its economy and as such we have upwardly revised our forecasts for 2014. We forecast the construction growth in 2013 will return into positive figures at 0.8% y-o-y. For 2014, we expect this growth to be maintained - stronger growth being subdued as private investors wait to see how whether economic recovery will fully take hold. Weak demand is the major risk both in the infrastructure and residential and non-residential sectors. That said, European money will likely continue to support investment and government spending has been little impacted by austerity measures. As such, although our outlook is still muted, there is an improving outlook for the construction industry over 2014.

Key developments informing our forecast include:

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Insurance

Slovakia Insurance

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BMI View:  As of   mid-2014, the latest newsflow indicates that premiums are rising slowly in both of the main segments. Given the slippage in both life premiums and motor vehicle related premiums in the past, this is significant. Profits appear to be holding up at satisfactory levels for at least most of the insurers. It remains abundantly clear that the domination of both segments by the local subsidiaries of world class multi-nationals is a source of stability and strength. Nevertheless, there are no obvious catalysts for rapid growth in premiums at any stage in the forecast period.

THE SLOVAK insurance sector has seen no dramatic changes so far this year, while stabilisation in the euro zone has improved consumer confidence there has been little impact on demand for...

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Medical Devices

Slovakia Medical Devices

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Espicom Industry View: The Slovaki an medical device market is expected to grow by a CAGR of 3.9 % over the 2013-2018 period, as the economy grows and health spending remains at a high level . Slovakia is heavily reliant on imported medical devices despite the presence of an established medical device industry. Health spending is high for the region, in per capita terms and as a percentage of GDP. If the government is successful in creating a single health insure r...

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Mining

Slovakia Mining

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BMI View: We forecast limited growth opportunities in Slovakia's mining sector as weakness in gold prices prevents the take-off of the gold sector. Coal will remain the mainstay of the country's mining industry over our forecast period to 2018. Even so, growth in coal output will be subdued.

We expect Slovakia's mining industry to undergo modest growth in value, reaching USD0.41bn in 2018, from USD0.38bn in 2013. Coal will remain the mainstay of the sector as gold mining fails to make significant gains as a result of weak global gold prices delaying project development as miners slash capital expenditure.

Over the long term we maintain that gold mining holds promise. New exploration activities for gold have been launched, which are attracting foreign investment namely from Cyprus-based EMED Mining and Canadian company Tournigan...

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Oil & Gas

Slovakia Oil & Gas

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BMI View:   Slovakia has above-average energy import dependency with high overall energy intensity compared with the regional average. The country remains dependent on Russia , but a recently announced EUR5.9bn EU infrastructure programme aims to allow for more flexibility when negotiating gas purchases and may boost supply.

Headline Forecasts (Slovakia 2012-2018)
  2012e 2013e 2014f ...

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Petrochemicals

Slovakia Petrochemicals

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The Slovakian petrochemicals industry experienced strong growth as a result of export-led growth and improved operating margins, despite the country's lacklustre overall economic performance, according to BMI's latest Slovakia Petrochemicals Report. Modest growth in capacity is expected in the medium-term.

In 10M13, the chemicals production index showed 4.9% year-on-year (y-o-y) growth while the rubber and plastics index rose 4.1%. Chemicals output had reversed an average decline of 4.4% in 2012 while rubber and plastic strengthened from growth of 2.0%. Local petrochemicals producer Slovnaft reported that in 9M13 monomer and polymer output was up 12% y-o-y to 243,000 tonnes.

In 2013, Slovakia's petrochemicals capacities included 210,000 tonnes per annum (tpa) ethylene, 50,000tpa benzene, 40,000tpa ethylene oxide, 40,000tpa ethylene glycol, 180,000tpa low density...

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Pharmaceuticals & Healthcare

Slovakia Pharmaceuticals & Healthcare

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BMI View: The Slovakian health ministry has introduced orders to reign in medical fees charged by doctors and outpatient physician, with rules set to enter effect from autumn this year. Medical fees by hospitals and doctors are symptomatic of the chronic inefficiency of healthcare funding within Slovakia. With the healthcare system set to come under the complete control of the Slovak state, funding issues will be resolved, but this will also have potential negative implications for the pharmaceuticals and healthcare sector, as the state will hold significant leverage and out of pocket payments are still high. Nevertheless,   Slovakia continues to be an attractive pharmaceutical market for large multi-nationals because it generally offers significant potential as a location for pharmaceutical research.  

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Power

Slovakia Power

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BMI View:   Overall power generation is forecast to decline by 3.1% in 2014 to 25.6TWh and 2.2% in 2015, to 25.0TWh due to a fall in the generation of electricity from coal and hydropower, and a slight dip in power produced from oil and natural gas. Over the ten-year forecast period, however, generation will increase by 25.6%, mainly as a result of an expansion of nuclear power. We   forecast only a minimal rise in consumption in 2014 and 2015, but an acceleration in demand the second half of the decade, driven by a steady expansion of the manufacturing sector. By mid-decade, Slovakia should become a net exporter of energy. However, risks remain, such as interference in pricing by the government and the rising costs of the project to build two new reactors at the Mochovce nuclear power plant....

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Real Estate

Slovakia Real Estate

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BMI View: Although the commercial real estate market in Slovakia is sluggish at present, we believe that the market's fundamentals are sound, and that once economic activity picks up in the eurozone, there should be significant room for expansion.

Slovakia avoided outright recession in 2010-2013, and from 2014 onwards we see GDP growth increasingly steadily, buoyed by consumer spending in the country. However, the Slovakian economy is heavily dependent on trade with the rest of Europe, and we do not see a robust recovery in the country's economy until the eurozone economy begins to pick up.

Thus in the short term we expect growth to be limited in the commercial real estate, both in terms of rental rates and new developments, while in the longer term we see significant expansion possibilities across all three sub-sectors.

Across the retail, office...

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Telecommunications

Slovakia Telecommunications

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Executive Summary

BMI View: The Slovak telecoms regulator TU SR concluded its auction of 4G spectrum in December 2013, with all three major operators acquiring frequencies, as well as one new entrant. While growth in the Slovakian mobile market has stalled since around 2010, growth in 3G has been impressive, with 3G subscriptions accounting for around 30% of total mobile subscriptions at the end of 2012. With the entrance of a new player, we expect growth to accelerate over the long term , and LTE would be the main beneficiary of this.

Key Data

  • The mobile sector declined by 0.8% in 9M13, compared to growth of 0.8% during the same period in 2012.

  • The market...

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Water

Slovakia Water

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BMI View: Over the past quarter, there have been limited developments in the Slovakian water sector. It is still in need of systemic investment, which presents opportunities for water infrastructure companies looking to become involved in Slovakia's underdeveloped wastewater and sanitation sectors. Sizeable flooding damage repairs are still ongoing, in conjunction with a slow economic recovery, which has meant that the Slovakian industry lacks government-led impetus and foreign investment.

Slovakia's poor economic performance has been the main hindrance to growth and improvements in the country's water sector, which should be benefiting from increased financial inflows due to EU membership. However, confidence has been dented by a timid economic climate, which dragged the construction market over...

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