Macro: COVID-19 Update Slovakia: Cautious return to the new normal

The number of infected people per capita were one of the lowest in the world. Nevertheless, since the country is opening and social / economic activity is growing, the number of infected people is increasing anew. However, the overall situation in terms of the pandemic is still relatively favourable. However, slow implementation of economic measures and the overall scope of the support is subject to criticism. Compared to regional peers, the scope of guarantee schemes and payment deferrals is low. We expect Q2 GDP to plunge by approximately 10% yoy - significantly weaker than Q1 - throwing back economic output to levels seen more than two years ago. We expect the unemployment rate to further grow in the following months touching the 8% level. Afterwards, a slow, but gradual decrease of unemployment can be expected. Inflation should stay around 1% also in 2021 amidst ongoing ECB support. We expect that the budget shortfall will amount to more than 8% of GDP in 2020. As a consequence, Slovak government debt will jump above 60% of GDP in 2020.

This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.