Slovak economy no longer defies global gravity

Tight labour market and short supply of skilled workers results in a pay bonanza.

Jaguar Land Rover reveals the new Defender model, which will be produced in its Nitra plant, Slovakia.Jaguar Land Rover reveals the new Defender model, which will be produced in its Nitra plant, Slovakia. (Source: Courtesy of JLR)

In recent years, the Slovak economy has been doing extraordinarily well, exceeding its potential by boosting its share on the rising global markets, thanks especially to its increased automotive capacities.

With global trade now stalling amidst rising protectionism, the value of Slovak exports, cars in particular, are starting to decrease. Domestic demand, to be sure, will still contribute positively to overall GDP growth, as households continue to enjoy generous wage gains. However, households are also facing increasing uncertainty about future income since declining orders and rising labour costs are now leading companies to scale down investment and hiring intentions. As a result, VÚB Bank is revising its growth expectations from 3.5 percent, which it predicted for 2020 a year ago, to 2 percent. Trade and currency disputes within the global economy also push the economic growth forecast downward, but these factors are rather unpredictable.

Slovakia no longer immune to economic slowdown

Amidst rising protectionism and trade tensions, the global economy has slowed significantly over the past year. From 3.6 percent growth in 2018, global GDP has slowed in 2019 to an estimated 2.6 percent. In the eurozone, 2019 growth expectations have downshifted from 1.7 percent, forecast a year ago, to 1.1 percent. Slovakia’s main trading partner, Germany, is now at its weakest economic phase since 2013, having slipped in mid-2019 at the brink of a technical recession.

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