IMF: Slovak growth stable; aging population a risk

After a mission in Slovakia, an international committee concludes that economic growth is stable but adds that the country faces several risks, caused by the international as well as domestic situation.

Intensified drawing of EU funds fuels growth of Slovakia's economy.Intensified drawing of EU funds fuels growth of Slovakia's economy. (Source: TASR)

Slovaks’ real incomes have reached 70+ percent of the EU average since the 1990s, but the country is also facing several risks, including regional disparities and ageing work force, both being among the most severe in Europe, International Monetary Fund (IMF)’s mission in Slovakia found in its Concluding Statement, released on February 1.

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IMF further pointed out that fiscal and structural policies are needed to support a sustained and more equitable convergence. “Also, growing bank exposure to the real estate sector requires the authorities’ continued vigilance and further pre-emptive policy measures may be needed,” reads the report, as cited by the TASR newswire.

With the Slovak GDP swelling by 3.3 percent in 2016, the country’s economic growth continues apace, observed the IMF. The fund noted that rising employment, low inflation, and rapid household credit growth were among the chief factors behind a consumption boost. On the other hand, low absorption of EU funds, reflecting the beginning of the new programming period, dampened investment and imports.

Slovakia’s economy is running “at close to its full potential”, with the unemployment rate having already returned to its pre-crisis level.

There are snags, too

However, one problem is a virtual exhaustion of the supply of highly-skilled workers, cautioned IMF, adding that the labour market has responded to this situation by beginning to absorb lower-skilled individuals and those coming off of long spells of unemployment.

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“Looking ahead, growth is expected to be broad-based and remain at 3.3 percent this year,” stated the IMF, adding that a higher investment in the car industry is projected to accelerate growth medium-term. Nonetheless, the optimistic medium-term outlook is not without risks, with the IMF pointing especially to Brexit and the possible economic uncertainty in the continent, likely affecting Slovakia through slower growth of its trading partners.

The rapid growth of credit to households is a also potential domestic risk, particularly if the labour market falters following a negative external shock, the IMF stressed.

Among long-term challenges, the IMF points out that productivity growth – the key driver of Slovakia’s strong convergence – has almost halved since 2008. Moreover, the ageing of Slovakia’s population will deepen the problem, unless structural reforms are introduced.

“Similarly, Slovakia’s economic success has not been evenly shared by all regions, with the gains heavily concentrated in the Bratislava region. Underdeveloped infrastructure, lower educational attainment, and low labour mobility have held back the eastern and central regions, keeping a sizeable part of the population unemployed or outside the labour force,” stated the IMF, recommending an “effective and timely absorption of EU funds” among the possible remedies.

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