Slovakia: Election outcome highly uncertain but unlikely to affect economic outlook
February 28, 2020
On 29 February, Slovakia will elect its new Parliament. While the result is currently highly uncertain, the short-term economic outlook is unlikely to be significantly affected.
Recent polls show that the leftist Smer-SD party, which has dominated Slovakian politics over the past few decades, could struggle to form a new government. Its lead is narrowing, with corruption scandals and the death of an investigative journalist in 2018 taking its toll, while its coalition partners risk falling below the 5% minimum threshold needed to win parliamentary seats.
In a bid to attract undecided voters, on 25 February the governing coalition increased pension payments, which will raise the 2020 and 2021 budgets by EUR 442 million and EUR 477 million, respectively. It also proposed doubling child benefits and abolishing highway tolls, which could have widened the budget deficit past the EU-mandated ceiling of 3% in 2022; however, Parliament rejected these proposals on 26 February.
Meanwhile, the far-right LSNS party is polling in third place and is expected to win more than 10% of the votes. This could force Smer-SD to strike an informal deal with LSNS in order to stay in power, which could cause confrontation with the EU and also bode ill for public finances given the party’s spendthrift stance.
Commenting on the potential coalition possibilities for the opposition, L'ubomír Koršnák, chief economist for Slovakia at UniCredit Bank, noted:
“All potential coalition parties are pro-business have anticorruption agendas, are mostly pro-European and have compatible goals. Despite that, the main question has to do with the stability of a potential coalition and whether a party composed of independents can put forward a clear agenda. Therefore, early elections being called in one to two years cannot be ruled out.”
Irrespective of the result, economic growth is seen growing robustly this year, supported by healthy domestic activity amid sturdy household consumption. However, downside risks to the outlook include the economy’s high dependence on diesel-related technologies, as consumers switch to electric vehicles; subdued global demand amid further delays in the German industrial recovery; and the outbreak of the coronavirus.
Author: Hanna Andersson, Economist