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Slovakia: Domestic Demand Replaces Exports as Growth Engine

Key Information
CapitalBratislava
Population5.4 million
Area49,035 sq km
CurrencyEuro (1 EUR = 1.1203 USD as of 29 August 2016)
Official languageSlovak
Form of governmentRepublic

 

Major Exports (% of total, 2015)Major Imports (% of total, 2015)
Machinery & transport equipment (59.2%)Machinery & transport equipment (41.7%)
Chemicals & related products (4.7%)Chemicals & related products (7.8%)
Mineral fuels, lubricants & related materials (3.7%)Mineral fuels, lubricants & related materials (7.1%)
Top three export countries (% of total, 2015)Top three import countries (% of total, 2015)
Germany (22.6%)Germany (17.1%)
Czech Republic (12.5%)Czech Republic (15.4%)
Poland (8.5%)Austria (8.1%)

Source: Economist Intelligence Unit (www.eiu.com)

 

Political Highlights

The Slovak Republic (“Slovakia”) emerged as an independent country following the dissolution of Czechoslovakia in 1993. It adopts parliamentary democracy with autonomous legislative, executive and judicial branches. Slovakia joined the European Union (EU) in 2004 and the eurozone in 2009. However, tensions with western EU members rose in 2015, owing mostly to the European refugee crisis. Slovakia is an adamant opponent of the refugee relocation scheme agreed by the bloc in May 2015, and filed a lawsuit against the scheme at the European Court of Justice, in which it was joined by Hungary. On the other hand, Slovakia maintains good relations with Russia and has been critical on EU’s sanctions against Russia. Slovakia currently holds the rotating six-month EU presidency until December this year, and will lead the EU meeting in September to discuss the future of EU after Brexit.

 

Economic Trend

Economic Indicators2013201420152016^2017^
Nominal GDP (USD bn)98.1100.486.687.388.6
Real GDP growth (%)1.4
2.5
3.6
3.1
2.8
GDP per capita (USD)18,100
18,520
15,960
16,070
16,320
Inflation (%)1.5
-0.1
-0.3
-0.3
1.0
Budget balance (% of GDP)-2.7
-2.7
-3.0
-2.3
-2.1
Current account balance (% of GDP)2.0
0.1
-1.3-1.0-0.8
General government debt (% of GDP)55.0
53.9
52.9
52.2
51.6

^Forecasts
Source: Economist Intelligence Unit (www.eiu.com)

 

Slovakia has undergone the transition from a centrally planned economy to a market economy since independence, and is now one of the fastest growing countries in Central Europe. The automotive industry plays a crucial role in Slovakia’s economy, bringing strong foreign investment and employment to the country. Many foreign-owned carmakers shifted their operations to Slovakia for the supply of low cost and skilled labour. Automotive production represented about 13% of Slovakia's GDP, and 44% of exports. In recent years, however, domestic demand has gradually replaced exports as the country’s main engine of growth.

Slovakia’s economy grew 3.6% In 2015, driven by solid household spending and surging investment activity. Investment benefited from intensified drawing of EU funds, while household consumption was supported by an improvement in labour market conditions, solid wage growth, falling prices and favourable credit conditions. Current account balance moved into deficit position as buoyant domestic demand boosted import needs. Yet, the current-account deficit did not pose an immediate threat to economic or financial stability.

Slovakia’s economic expansion is set to continue in 2016 and 2017, driven by the household sector. The labour market has witnessed a cyclical improvement. Unemployment rate fell from 14.1% in 2013 to 11.5 % in 2015, and further down to 9.8% in June 2016. However, structural unemployment continues to represent a key challenge, reflecting pronounced geographical differences in labour market conditions, accompanied by low labour mobility.

Chart: Hong Kong total exports to Slovakia
Chart: Hong Kong total exports to Slovakia
Hong Kong-Slovakia Trade

Total exports from Hong Kong to Slovakia decreased by 11.2% from HK$2,173 million in 2014 to HK$1,930 million in 2015. The top three export categories to Slovakia were: (1) telecommunications, audio & video equipment (-11.3%), (2) electrical machinery, apparatus & appliances, & parts (-18.0%), and (3) office machines & computers (-3.8%), which represented 82.5% of total exports to Slovakia.

ECIC Underwriting Experience

ECIC imposes no restrictions on covering Slovak buyers. For 2015, the number of credit limit applications on Slovakia increased by 16.7%, while the amount of credit limit applications and insured business decreased by 59.4% and 29.0% respectively. Major insured products were electronics, watches & clocks and metallic products, which represented 48.6% of ECIC’s insured business on Slovakia. The Corporation’s underwriting experience on Slovakia has been satisfactory, with no claim payment or payment difficulty case reported from September 2015 to August 2016.

Content provided by Picture: Hong Kong Export Credit Insurance Corporation
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