The Slovak Republic – An Economic Snapshot
The Slovak Republic is a member country of the European Union, the Organisation for Economic Co-operation and Development and since 2009, as a country using the single european currency (euro), has been a member country of the Euro Area (or the Eurozone). Major rating agencies have been assigning high credit quality ratings to Slovakia for more than a decade. Currently, Fitch A, Moody´s A2 and S&P A+.
Last flash estimates for 2022 show GDP of Slovakia amounted to 106.9 bn € in market prices, which is 19 614 € per capita. In 2022, the Slovak Economy grew by 1.7% (in constant prices) and was growing faster than the EU countries on average (Chart 1). The largest contribution, up to 23%, to GDP comes from a local industrial production which is dominated by an automotive industry that represents around 50% of all industrial production of the country. A construction industry contributes up to 5% and a traditional agriculture produces up to 2% of GDP. The Slovak economy is extremely open, total exports and imports exceed 180% of GDP and therefore it is very sensitive to price changes in international markets.
Out of total population 5.4 mn, a labour force represents 2.7 mn individuals. Due to an ageing a ratio of the labour force gradually declines and in next years will fall under 50% of the population. In the last decade, an unemployment rate significantly decreased (Chart 1) and the average unemployment rate in 2022 was 6.1%. A negative phenomenon is that at least half of individuals without jobs have been unemployed for more than two years.
Inflation rate (CPI) in Slovakia has ranged to 4% over last decade. From 2014 to 2016, the Slovak economy faced a period when price levels went significantly down, and the inflation rate recorded negative figures. In 2022, the consumer prices increased by 12,8% on average (Chart 1). Inflationary pressures were almost exclusively imported from abroad. Extremely high prices in international commodity markets were carried over to the national economy and pushed local energy prices to historic highs.
An average monthly salary in the Slovak economy exceeded 1 300 € in 2022. Total labour costs per employee amounted to 2 000 € a month on average.
A long-lasting government overspending (more than 5% of GDP a year within last three years) has cumulated general government gross debt which almost hit the Maasttricht criteria of 60% of GDP and hugely exceeded the national limit of 50% of GDP set by a local law on prudent fiscal budgeting. The Slovak Republic applies quite high fiscal redistribution, general government revenues reached 41.3% of GDP and general government expenditures 46.2% of GDP last year (Chart 2).
Corporate Income Tax rate is 21%, Individual Income Tax rate 19% and standard VAT rate is 20%. Dividends are not taxed if a beneficiary is a Slovak resident or if it is a foreign entity domiciled in a country which has a double taxation treaty with Slovakia.
As an EU member country, Slovakia implements strategies and policies to approach developed EU economies as soon as possible. A highly dynamic convergence has been recorded in the price levels that moved over 80% of EU average. GDP per capita remains stable below 60% of EU average which implies the country is not getting closer to more developed peers. An individual´s income has smoothly increased, however a gap between prices and income gets wider over time.
Slovakia will face serious economic challenges in the future. The most important one is the ageing of its population. An average life expectancy will increase and exceed 85 years beyond 2070. To successfully cope with these challenges the country must make systems of taxes, social security, and healthcare much more effective.