Slovakia Business Forecast Report Q1 2013

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook

Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Labour Code Revisions Pose Competitiveness Risks
The adoption of a number of revisions to Slovakia's labour market code designed to improve worker's rights poses both near- and longterm
risks to the economy
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Convergence With West Remains Core View
We expect Slovakia to continue to converge with Western European policies and standards of living over the next 10 years as the small
economy has benefited greatly from inclusion in the bloc

Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Strong Headline Growth Obscures Weaker Fundamentals
Recently released Q212 economic activity data confirms that Slovakia's real GDP growth is now entirely dependent on exports, with
household consumption, government consumption and gross fixed capital formation all registering y-o-y contractions in the second
quarter of the year
TABLE: ECONOMIC ACTIVITY
Fiscal Policy
Outlook Positive For Fiscal Deficit
We hold a positive assessment of Slovakia's 2013 budget, and have revised up our forecasts for the 2013 fiscal deficit to 3 0% of GDP,
from 3 3% previously, bringing it into line with the EU fiscal treaty criterion
TABLE: FISCAL POLICY
Monetary Policy
Inflation To Moderate In 2013
Year-on-year growth in Slovakia's harmonised index of consumer prices (HICP) has remained sticky in recent months, prompting us to
revise up our average inflation forecasts for 2012 and 2013 to 3 5% and 2 7% respectively, from previous forecasts of 2 2% and 2 4%
TABLE: INFLATION
Balance Of Payments
Exports To Run Out Of Steam
We have revised down our forecast for Slovakia's current account deficit in 2012 and 2013, which we now forecast at 0 7% of GDP and
0 1% from a previous forecast of 1 7% and 1 5% respectively
TABLE: CURRENT ACCOUNT
TABLE: MACROECONOMIC IMBALANCE SCOREBOARD
Banking Sector
Government Poses Biggest Risk To Bank Profitability
Although asset expansion for Slovakia's banking sector is likely to continue at a healthy pace over the next few years, we retain a
neutral outlook towards the sector
Regional Monetary Policy
Another ECB 'Game Changer' Fails To Deliver
As expected, the ECB announced a new framework for purchasing government bonds at the September 6 monetary policy meeting,
achieving a lasting resolution for the crisis Although there is scope for markets to rally in the near term, as has been the case in the past
when the ECB has met (though not surpassed) expectations, this will fizzle out as investors realise that the 'Draghi put' is still somewhat
elusive
Exchange Rate Policy
US$/EUR – ECB Delivers Temporary Reprieve For Euro
Under pressure from escalating capital flight and a surge in short speculative positions in recent months, the euro dropped to a
low of US$1 2061/EUR on July 24 – its weakest reading since 2010 Mario Draghi subsequently ratcheted up the rhetoric by hinting at a
shift in monetary policy towards government bond purchases, which has buoyed the euro over the last month

Chapter 3: 10-Year Forecast
The Slovak Economy To 2021
Lower Trend Growth Ahead
TABLE: LONG-TERM MACROECONOMIC FORECASTS

Chapter 4: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATING
TABLE: LABOUR FORCE QUALITY
Infrastructure
TABLE: EMERGING EUROPE – ANNUAL FDI INFLOWS
TABLE: TRADE AND INVESTMENT RATINGS
Market Orientation
Operational Risk

Chapter 5: Key Sectors
Oil & Gas
TABLE: SLOVAKIA OIL & GAS – HISTORICAL DATA AND FORECASTS, 2009-2016
Power
TABLE: SLOVAKIA TOTAL ELECTRICITY GENERATION DATA AND FORECASTS, 2010-2016
Other Key Sectors
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS
TABLE: AUTOS SECTOR KEY INDICATORS
TABLE: FOOD & DRINK SECTOR KEY INDICATORS
TABLE: PHARMA SECTOR KEY INDICATORS
TABLE: DEFENCE & SECURITY SECTOR KEY INDICATORS
TABLE: TELECOMS SECTOR KEY INDICATORS
TABLE: FREIGHT SECTOR KEY INDICATORS

Chapter 6: BMI Global Assumptions
Global Outlook
Mixed Signals For The New Year
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES REAL GDP GROWTH FORECAST
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST 53