Slovakia’s ambitious recovery and resilience plan, supported by the EU, will boost recovery and growth, but supply chain disruptions and a low vaccination rate continue to pose risks, OECD stated in its latest report on Slovakia.
The country needs pension, labour and health care reforms over the medium to longer term, to offset the pressures of an ageing population.
The recently published OECD Economic Survey of the Slovak Republic suggests that with less than half of the population fully vaccinated, Slovakia needs to focus on overcoming vaccine hesitancy and increasing the vaccination rate.
“The immediate policy priority for the Slovak Republic is to get more people vaccinated,” OECD Secretary-General Mathias Cormann said, presenting the survey alongside PM Eduard Heger in Bratislava. “Once beyond the crisis, addressing the challenges of population ageing will be critically important."
Boosting productivity will be crucial to sustaining living standards as Slovakia is ageing rapidly and faces one of the fastest future declines in the working-age population in the OECD.
Working-age population to shrink by one fifth
Ageing-related spending is set to rise rapidly in the years ahead, which will add to the fiscal burden from the pandemic, while a shrinking workforce will be a drag on future growth, Cormann stated.
With rising life expectancy and declining fertility rates, Slovakia’s population is ageing rapidly.
The working-age population is expected to shrink by about 20 percent between 2021 and 2050. OECD projections suggest that without measures to contain ageing-related costs, notably spending on pensions, health and long-term care, Slovakia’s public debt will rise significantly by 2050.
Extending working lives and boosting workforce participation through pension, health and long-term care reforms while helping more mothers, low-skilled, Roma and older workers integrate into the labour market, increasing labour productivity will help to mitigate these pressures.
Covid disrupted steady rise in living standards
The Covid-19 crisis disrupted the steady rise in living standards in Slovakia. Over the period since 2000 Slovakia has consistently ranked among the fastest-growing OECD economies. The real per capita income doubled over the two decades preceding the outbreak of the pandemic.
The survey projects Slovakia’s GDP growth by 5.0 percent in 2022 and 4.8 percent in 2023, after 3.2 percent growth in 2021. Consumer price inflation is expected to pick up further to about 5.5 percent in 2022, before moderating to around 2.5 percent in 2023.
While the pandemic hit the Slovak economy hard, timely policy support, including job retention schemes, limited its impact on employment.
Global supply chain disruptions caused by the pandemic have affected industry, particularly car production. More recently, this has also slowed the recovery process.
Strong and sustainable recovery
The government’s plan to invest EU recovery funds in education, health care, research and a greener, more digitalised economy would help foster a strong and sustainable recovery. However, the impact on growth and living standards will depend on the timely and effective implementation of the proposed reforms to support the impact of those investments.
Improving the education of all children, ensuring adequate skills development for workers of all ages in a digital economy, helping firms to adopt new technologies, raising R&D spending and enhancing the business environment, would help to strengthen Slovakia’s capacity to innovate and benefit from the digital transformation. It is also vital to attract highly skilled workers from abroad, also luring back those Slovaks who have emigrated for their studies.