Although Slovakia survived the COVID-19 pandemic and subsequent energy crisis relatively well, this came at the expense of high deficits, debt and inflation, Emerging Europe informed.
Nevertheless, Slovakia’s export-oriented economy remains vulnerable to external shocks, despite a significant decline in inflation, according to the latest Organisation for Economic Co-operation and Development (OECD) economic survey released this week.
The OECD predicts that GDP growth will increase to 2.1% in 2024 and 2.6% in 2025 after a 1.1% rise in 2023. The organisation also expects inflation to fall significantly to 3.4% in 2024 and 2.7% in 2025, down from 11% in 2023.
Lower inflation will support real wage growth and lead to stronger private consumption, while the absorption of EU Recovery and Resilience funds and stronger external demand will support investment and exports.
Slovakia’s population is ageing rapidly. The share of citizens aged 65 and over in relation to the working-age population is expected to almost double by 2050. Pension reforms in 2022 have improved resilience, but further reforms are needed to alleviate cost pressures and extend working life, including by reducing early retirement opportunities. OECD Secretary-General Mathias Cormann stated:
It is time to strengthen Slovakia’s fiscal position with a credible fiscal consolidation strategy which will also help to ease ongoing inflationary pressures.
More efficient public investment spending will maximise the effect of the large inflows of EU funds and ensure that investments in digitalisation and the green transition are not held back. Tax reforms that shift taxes from labour to property and environmental taxes can also boost economic growth and reinforce public finances.
Increasing the employment rate of women with young children will mitigate the effects of a shrinking labour force and also reduce the gender pay gap. Exceptionally long parental leave policies can be changed to encourage women to return to the labour market, with increased access to affordable, high-quality preschools and more flexible working conditions.
The integration of Slovakia’s manufacturing sector into global value chains has been a key driver of the country’s productivity growth, but the sector is highly exposed to global shocks and trends, such as automation and the green transition.
Simplifying administrative procedures can help alleviate constraints on housing supply by accelerating construction. Supporting the private rental market through a better balance of landlord and tenant rights as well as tax reforms can stimulate housing and labour mobility.
At the same time, the expansion of the stock of social rented housing and the acceleration of titling in Roma settlements are key factors in improving the living conditions of the most vulnerable households, experts believe.
