This Survey is published on the responsibility of the Economic and Development Review Committee (EDRC) of the OECD, which is charged with the examination of the economic situation of member countries.The economic situation and policies of the Slovak Republic were reviewed by the Committee on 22 October 2012. The draft report was then revised in the light of the discussions and given final approval as the agreed report of the whole Committee on 13 November 2012.The Secretariat’s draft report was prepared for the Committee by Caroline Klein under the supervision of Andreas Wörgötter. Statistical assistance was provided by Béatrice Guérard. The Survey also benefitted from consultancy work by Robert Price, Gabriel Machlica, štefan Kišš, Matej šiškovic and Jarko Fidrmuc.The previous Survey of the Slovak Republic was issued in November 2010.

The Slovak economy recovered very strongly after the global financial and economic crisis and will remain among the strongest in the OECD. However, job creation is disappointing, domestic demand remains subdued and the external drivers of growth risk fading away. The fiscal room gained in the run-up to euro accession quickly evaporated during the crisis, and public debt has increased considerably since 2008. The main priorities now are to restore public finances while fostering domestic drivers of growth and ensuring the funding of items to promote growth, such as education and active labour market policies. The government has put together a credible consolidation programme for debt stabilisation, but long-term fiscal sustainability issues remain unresolved. This Economic Survey makes recommendations on how to improve the fiscal framework, raise labour market performance, and strengthen outcomes of the education system.

Slovakia has recovered strongly from a deep recession and at a more rapid pace than most other OECD countries. This performance testifies to the ability of the economy, which is highly dependent on exports, to increase productivity growth and achieve wage moderation, thereby regaining international competitiveness. However, GDP growth has remained significantly lower than in the past and underlying imbalances, such as regional labour market disparities, fiscal gaps, and dependence on foreign investors, have become more visible (). As in most OECD countries, the 2008-09 crisis and its aftermath generated significant fiscal consolidation needs and debt has increased sharply. Restoring competitiveness supported vital exports. However, weak domestic demand was a drag on economic activity as labour market remains under stress and significant consolidation measures were implemented.

The challenge for fiscal policy is to achieve fiscal consolidation in a way which supports the fragile recovery and protects spending on areas which are important for re-embarking on a trajectory of high trend growth and underpinning a catch-up in living standards. While the recently established fiscal rules have significantly improved the fiscal framework, a further strengthening in medium-term fiscal discipline will be necessary to avoid pro-cyclical fiscal policy. Raising the effectiveness of tax collection, reforming the tax structure towards less distortive taxes and making more out of available EU funds would also play a helpful role in a growth-friendly fiscal consolidation. Finally, more needs to be done to ensure an adequate prioritisation of spending and an efficient use of public revenues. In particular, stepping up the analytical monitoring, evaluation and assessment capacity in spending ministries should help to rein in wasteful spending.

Educational outcomes are below the OECD average and are too dependent on the socioeconomic background of students. Unemployment is high and the school-to-job transition process does not work well. Spending on education and active labour market policies are very low by international standards. While reforms are under way in both areas, further efforts are needed to support the domestic drivers of growth. At a time of fiscal consolidation, these two policy areas should at the least be protected from budgetary cuts while every opportunity for efficiency gains should be seized. Not least because of the high level of long-term unemployment, more emphasis should be placed on activation policies, particularly on placement services, which are currently underfinanced but also insufficiently evaluated. Educational achievements and thus future labour market outcomes could be improved by re-allocating resources to teaching activities, in particular for disadvantaged pupils. Developing work-based vocational education would also facilitate the transition from school to work.