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Commission Staff Working Document. Country Report – Slovakia 2018

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Commission Staff Working Document. Country Report – Slovakia 2018 EUROPEAN COMMISSION Brussels, 7.3.2018 SWD(2018) 223 final COMMISSION STAFF WORKING DOCUMENT Country Report Slovakia 2018 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2018 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2018) 120 final} EN EN CONTENTS Executive summary 1 1. Economic situation and outlook 4 2. Progress with country-specific recommendations 11 3. Reform priorities 16 3.1. Public finances and taxation 16 3.2. Financial sector 20 3.3. Labour market, education and social policies 22 3.4. Investment 31 3.5. Sectoral policies 38 Annex A: Overview Table 42 Annex B: MIP Scoreboard 47 Annex C: Standard Tables 48 References 54 LIST OF TABLES Table 1.1: Key economic and financial indicators 10 Table 2.1: Summary table on 2017 CSR assessment 13 Table 3.3.1: ALMP expenditure by type of actions (% of GDP, 2015) 25 Table B.1: MIP Scoreboard (AMR 2018) 47 Table C.1: Financial market indicators 48 Table C.2: Headline Social Scoreboard Indicators 49 Table C.3: Labour market and education indicators 50 Table C.4: Social inclusion and health indicators 51 Table C.5: Product market performance and policy indicators 52 Table C.6: Green Growth 53 LIST OF GRAPHS Graph 1.1: Real GDP and its components 4 Graph 1.2: GNI per person in purchasing power standards (PPS) as a share of EU-28 5 Graph 1.3: Investment 5 Graph 1.4: Exports, REER and productivity 6 Graph 1.5: Current account balance 7 Graph 1.6: Unemployment and activity 7 Graph 1.7: Labour shortages (% of respondents) 8 Graph 1.8: Inflation (y-o-y in %) 8 Graph 1.9: Loans to sectors (y-o-y in %) 9 Graph 1.10: Nominal house prices 9 Graph 2.1: Overall multiannual implementation of 2011-2017 CSRs to date 11 Graph 3.1.1: VAT compliance gap (2011-2015) 16 Graph 3.2.1: House prices and mortgage lending 20 Graph 3.2.2: Housing market overvaluation gap 20 Graph 3.2.3: Housing investment indicators 21 Graph 3.3.1: Unemployment duration (2016) 22 Graph 3.3.2: Employment rate by age and education level (2016) 24 Graph 3.3.3: Employment rate by gender and age (2016) 24 Graph 3.3.4: At-risk-of-poverty gap (2016) 27 Graph 3.3.5: PISA 2015 results by language spoken at home (in PISA score points) 28 Graph 3.4.1: Perceived judicial independence (2016-17) 36 Graph 3.5.1: RDI investment by sector 38 LIST OF BOXES Box 2.1: Tangible results delivered through EU support to structural change in Slovakia 14 Box 2.1: Policy Highlights: The 'Value for Money' Project 15 Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 23 Box 3.4.1: Investment challenges and reforms in Slovakia 37 EXECUTIVE SUMMARY Slovakia's positive economic developments offer shortages of skilled labour in some sectors of the a chance to tackle remaining structural economy. Poor educational outcomes and challenges and raise its growth potential. (1) inequalities based on socioeconomic background Addressing long-standing weaknesses in the areas are major obstacles for inclusive growth. of labour market inclusion, education, healthcare, public administration and corruption could prove a Developments in the wider economy are transformative step in utilising Slovakia's generally favourable. As economic growth is productive potential and public funds in the best expected to remain well above the EU average, possible way. Concerted policy efforts may also Slovakia's income convergence process is expected shield the economy from a potential slowdown and to resume. However, some regions have failed to support the diversification of the economy, attract major investment, which has exacerbated allowing it to move up the value chain. regional disparities in many economic and social areas. Although consumer price inflation is set to Slovakia's economic expansion continues at a increase, sizeable wage increases are expected to swift pace. According to the latest Commission ensure a rise in real wages and real disposable forecast, real GDP is projected to have increased household incomes. Growth in house prices has by 3.4 % in 2017 due to solid household spending picked up in the context of low interest rates and growth amidst a strong labour market recovery. limited housing supply. However, there are no Investment activity recovered slightly in 2017 signs yet of the housing market being overvalued. from the low level of the previous year but failed Fiscal consolidation is set to continue, supported to make a sizeable contribution to growth. Real by a favourable economic environment. In 2018 GDP growth is expected to reach 4 % in 2018 and the government deficit is projected to fall to 4.2% in 2019. Accelerating private consumption is around -1 % of GDP and the debt-to-GDP ratio is set to remain the strongest driver of growth for projected to decline to below 50% of GDP. both years, buttressed by rising employment and robust wage growth. Both private and government Slovakia has made some progress in addressing fixed investment is likely to accelerate markedly in the 2017 country-specific recommendations. 2018 and 2019. External demand is also expected Some progress has been made in a number of to act as an increasingly important source of policy areas, including on improving the cost- economic growth, partly owing to expanding effectiveness of the healthcare system, improving production and export facilities in the activation measures for disadvantaged groups, manufacturing sector. enhancing employment opportunities for women, and adopting and implementing a comprehensive The labour market witnessed further positive plan to lower administrative and regulatory developments. The employment rate rose to barriers for businesses. Only limited progress has 71.2 % (third quarter of 2017) and the been made in improving the quality of education, unemployment rate fell to 8.1 % in 2017. Further increasing the participation of Roma in education, improvements in the labour market are expected in improving competition and transparency in public the medium term. However, long-term procurement, and in improving the effectiveness of unemployment and limited job opportunities for the justice system. No progress has been achieved disadvantaged groups, low internal mobility and in stepping up the fight against corruption. large disparities between the western region around Bratislava and the east of the country Regarding the national targets under the Europe continue to hamper economic development. The 2020 strategy, Slovakia currently meets, or is on tightening of the labour market is accompanied by track towards meeting, the prospective targets for the employment rate, greenhouse gas emissions, (1) This report assesses Slovakia’s economy in the light of the renewable energy use, energy efficiency and European Commission’s Annual Growth Survey published on 22 November 2017. In the survey, the Commission calls reducing the number of people at risk of poverty on EU Member States to implement reforms to make the and social exclusion. While a sufficient reduction European economy more productive, resilient and in the early school leaving rate appears to be inclusive. In doing so, Member States should focus their attainable by 2020, the indicator has deteriorated efforts on the three elements of the virtuous triangle of economic policy - boosting investment, pursuing structural recently and continued action is needed to reach reforms and ensuring responsible fiscal policies. the targets. The distance to the targets for Research 1 Executive summary and Development (R&D) intensity and tertiary Structural labour market weaknesses education remains significant, but while is persist. In light of consistently high long-term progressively narrowing in the latter case, unemployment and increasing skill shortages, sustained effort is needed to attain the R&D target Slovakia has started implementing the action again. plan for the integration of the long-term unemployed focusing on personalised services. Slovakia faces challenges with regard to a However, the rate of participation in active number of indicators of the Social Scoreboard labour market policies is still low and their supporting the European Pillar of Social Rights. upskilling component remains limited. Low- Whilst the high economic growth has translated skilled workers, the Roma community and into a significant improvement of employment young people continue to face high levels of outcomes, challenges in areas such as childcare, unemployment, amplified by high regional active labour market policies and social transfers disparities. The gender employment gap are apparent. Large gender disparities in the labour remains high, with women's employment market persist. Access to inclusive education and opportunities conflicting with care social housing is limited. On the positive side, responsibilities. Efforts are being made to income inequality remains very low and poverty improve access to childcare through investment rates are decreasing. from EU funds, but quality and affordable care, in particular for children under the age of 3, are Key structural issues analysed in this report, which still lacking. Labour market improvements point to particular challenges for Slovakia's contributed to the decrease in the risk of economy, are the following: poverty or social exclusion but the intensity of poverty is relatively high and not addressed Fiscal revenues are increasing and tax sufficiently by social inclusion measures. compliance has improved but a large VAT Social housing remains underdeveloped and gap persists. In light of persistent issues eligibility criteria for receiving unemployment further anti-fraud measures are planned for benefits are strict. 2018. While fiscal incentives promoting R&D were increased, property taxation remains a Reforms are taking place in the education weak revenue source.
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