The sectors most affected by the pandemic (i.e. tourism, retail, and construction) traditionally provide seasonal or temporary jobs for vulnerable workers, notably low-skilled, women, youth, and marginalised Roma. The pandemic highlights a need to strengthen skills across the population. This will improve employability of vulnerable groups, boost productivity, make the economy more resilient to future shocks and prepare it to make the most out of digitalisation.
©Shutterstock/Anton PetrusRead full country note
2021 Structural Reform Priorities
After contracting by 6.3% in 2020, the economy is projected to grow by around 2.7% in 2021 and 4.3% in 2022. Consumption will recover gradually on the back of higher disposable income, improving labour market conditions and increased household confidence as an effective vaccine is rolled out. Investment growth will be limited by high uncertainty, weakened corporate balance sheets and low capacity utilisation. Unemployment is set to fall gradually, but will remain above pre crisis levels at the end of 2022. Inflation will remain subdued given considerable economic slack.
The sizeable fiscal stimulus has helped prevent a deeper contraction. Fiscal policy should remain supportive in the near term.
Since joining the OECD in 2000, the Slovak Republic has continuously ranked among the fastest growing OECD economies, progressively catching up with higher-income countries. Labour market performance and living standards have improved at a high pace, while inequality remained low. In 2019, the typical Slovak worker earned 70% more than 20 years earlier.
Macroeconomic and financial stabilisation, privatisations, changes in business regulations, tax reforms and policies to foster labour market dynamism were all key to promote economic growth and convergence to higher-income countries. Together with its favourable geographical position, this contributed to make the Slovak Republic one the most sought-after investment destinations in Europe.
The Slovak economy remains strong. Employment has reached a record high, and unemployment is at its lowest level since 1993. Short-term growth prospects are good. Thanks to sustained economic growth, almost 4% on average in the last two decades, living standards have converged towards the OECD average, and public debt has declined in relation to GDP. Export-led expansion has been driven by continuing inward investment in the car industry, strong integration into global value chains and resulting improvements in labour productivity. Growth has spilled over into the domestic services sector to some extent, but productivity gains there have been much lower. Strong wage growth is fuelling consumption, inflation and house prices. Household indebtedness has been rising rapidly. The authorities will have to continue to use fiscal and macro-prudential policies to avoid overheating.