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2021/03/10 / Erste Group Research

Economic recovery to be visible from late spring

Better year-end softened the 2020 GDP decline

The COVID-19 pandemic has worsened in early 2021 and the country had to go into a stricter lockdown. The daily death rate per capita is currently among the highest in the world, hospitals are at their capacity, so it looks like lockdown will last several weeks longer and even stricter lockdown cannot be excluded.

Economic results of 2020 were surprisingly good given the situation, but 1Q21 brings sizeable worsening of retail trade given the stricter lockdown (saving rate of households has increased). After falling by 5.2% in 2020, real GDP is expected to grow by 4.0% in 2021, followed by growth of 4.8% in 2022 (aided by new EU funds and NextGenEU grants). Restrictive measures are affecting mostly service-sector oriented parts of the economy. Once restrictions ease and normal activity resumes from late spring 2021 onwards, economic recovery should pick up speed.

Inflation should reach 0.9% on average in 2021 before increasing to 2% in 2022. Labour market is showing signs of resilience, as government measures to protect jobs have mitigated the negative impact. Unemployment rate may reach 7.3% on average in 2021 before declining to 6.3% in 2022, along with the expected economic recovery.

ECB's loose monetary policy sent government bond yields visibly lower; the inflation concerns, however, have raised yields in the recent weeks. Fiscal expansion continues; we may see the fiscal deficit at 6% of GDP this year after an expected 8% in 2020.
A year since parliamentary elections, governing coalition faces it's probably biggest crisis so far, over the failure to lower the number of COVID-19 infections and the number of fatalities in the country. Junior coalition partners (Za ludi and SAS) do not demand an early elections but want a reshuffle at the posts of health and prime ministers.The tensions will likely continue as the PM sees no reason to dismiss his health minister, nor a reason to resign.

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General information

AuthorErste Group Research
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusSlovakia
Currency in focusEuro
Sector in focus-


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