2019 OECD Economic Surveys: Slovak Republic 2019

image of OECD Economic Surveys: Slovak Republic 2019

The Slovak economy remains strong. Thanks to sustained economic growth, almost 4% on average in the last two decades, living standards have converged towards the OECD average. The economy has benefitted from strong integration into global value chains, but the gains from this integration are likely to decline in the future. Foreign direct investment has focused mainly on downstream activities, which, although generating high productivity growth in the past, have low value added. Faced with rapid wage increases, technological change and labour shortages, Slovakia needs to upgrade the skills of its workers to protect their longer-term employability and foster productivity gains.While poverty and inequality are low overall, the majority of Slovakia’s Roma, about 8% of the population, face extreme social exclusion, with very low employment, widespread poverty and low life expectancy. Providing better living standards and economic opportunities to the Roma will require well-coordinated efforts across social, housing, education and employment policies.


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Increasing the benefits of Slovakia’s integration in global value chains

Heavy involvement in international trade and global value chains has been an effective way for promoting Slovakia's economic and social catch-up. Large foreign direct investment inflows have helped develop a competitive export-led manufacturing industry, with a strong specialisation in the automotive and electronics sectors, fostering robust growth and productivity performance with good fiscal and external balance results. However, the benefits of this development strategy have diminished since the 2008-09 crisis and the subsequent slowdown in world trade growth. Moreover, over the years Slovakia’s integration into world trade has remained for a large part based on downstream activities of value chains that incorporate little domestic value added, such as the assembly of imported intermediate goods, and further expansion of this growth model is hindered by employers’ increasing difficulties in finding skilled labour. There is a need to help local firms to better benefit from foreign companies’ know-how, further prepare the workforce for the increasing digitalisation and automation of most industries, promote the diversification of the economy and, in particular, strengthen the role of the services sector. This assessment, which is derived from the first part of this chapter, is followed by a discussion of the changes required to better leverage Slovakia’s experience with global value chains. All in all, a broad range of well-coordinated policies is called for. This entails better adapting the skills of the workforce to the changing needs of the labour market, enhancing the business environment, improving transport infrastructure and stimulating firms’ innovation capacity.



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