Successfully investing in Slovakia

last updated on 31 August 2022 | reading time approx. 4 minutes

How do you assess the current economic situation in Slovakia? »
How would you describe the investment climate in Slovakia? Which sectors offer the largest potential? »
What challenges do German companies face during their business ventures into Slovakia? »
What importance does Germany have for the Slovakian economy? »
In your opinion, how will Slovakia develop? »

How do you assess the current economic situation in Slovakia?

Despite the ongoing uncertainty related to the new global challenges, the Slovak economy is expected to grow. The economy is gradually recovering from the coronavirus pandemic this year, but Russia's invasion of Ukraine will partially slow down the recovery. Nevertheless, GDP could grow by 2.1 percent this year. Rising energy prices will translate into rising prices for consumer goods and services, which will limit household consumption. GDP will grow by 5.3 percent next year (2023), supported by the post-conflict recovery and the use of EU funds.

Slovakia has also seen a deterioration in industrial sentiment due to a shortage of parts and a dampening of excess demand for goods, as well as rising inflationary pressures. The war poses a further challenge. The economic shocks caused by the war will weaken job creation, but employment will still grow. Employment will not start to grow more strongly again until the second quarter of 2023, supported by investments from the economic stimulus program and the use of EU funds.

How would you describe the investment climate in Slovakia? Which sectors offer the largest potential?

Slovakia has become one of the most popular destinations in the region in recent years. Hundreds of prominent investors (also from Germany) have chosen Slovakia as a suitable location, especially for the automotive industry. The location factors have remained good in Slovakia.

As the main factors attracting them to Slovakia, investors cite:

stable investment environment;
favourable geographic location;
dynamic economic growth;
the euro as the official currency;
continuous development of infrastructure;
high quality of labour force;
high productivity.

We expect that the above conditions will not change after the end of the Covid-19 crisis/war. On the contrary, it is expected that the state will take appropriate measures to revive the economy, which may positively influence the investment environment in the future. Among the industries that have been developing most dynamically for a long time are mechanical engineering, electrical industry and, of course, the automotive industry. The start of production of Jaguar Land Rover and Volvo will further strengthen the dominance of the industry in Slovakia. Among the industries that have been developing most dynamically for a long time are mechanical engineering, electrical industry and, of course, the automotive industry. The start of production by Jaguar Land Rover and Volvo will further strengthen the dominance of the automotive industry in Slovakia.

The growing competitiveness of the Slovak economy is also reflected in the long-term rise in the Global Competitiveness Ranking (World Economic Forum). The rise in the ranking is the result of long-term and systematic implementation of measures in favour of entrepreneurs. Examples of such measures are the regular anti-bureaucracy packages.

What challenges do German companies face during their business ventures into Slovakia?

The general political situation in Slovakia is considered stable. According to the Credit Insurance Group Credendo, Slovakia is one of the safest and politically most stable countries in Europe. Slovakia has the lowest risk among EU countries, especially in the following categories: Risk of political unrest, Risk of state intervention in private property, Currency risk and Transfer risk.

After the last parliamentary elections in March 2020, a new government with strong anti-corruption measures (including improvements in the judicial system) has come into office. Taken together, this should make Slovakia even more stable and a sought-after place to do business.

Even before starting business in Slovakia, it should be taken into account that Slovak legislation differs in certain areas from the German system to some extent (e.g. labour law). Furthermore, relatively frequent changes in tax and legal regulations have been observed in Slovakia (compared to Germany). The unemployment rate, which has been very low for years, represents one of the greatest challenges in Slovakia. In addition, the struggle of employers to attract qualified workers over many years has led in part to an increase in labour costs. During the pandemic, the pressure on labour costs eased somewhat, but is now increasing again, mainly due to rising inflation.

What importance does Germany have for the Slovakian economy?

German companies are among the largest employers in Slovakia and are therefore important players on the Slovak market. However, their exact number is difficult to determine, as many companies are owned by subsidiaries registered in other countries. It is estimated that about 2,400 companies with direct or indirect participation of German capital are active on the Slovak market.

The strongest country in the euro zone is also Slovakia's most important business partner. In 2021, Germany accounted for around 22 percent of the country's total exports. Slovakia has been running a trade surplus with Germany for several years now.

In your opinion, how will Slovakia develop?

The further development of the economy depends to a large extent on the further development of the global crisis caused by the coronavirus and the war. Apart from the current uncertainties, Slovakia is likely to remain at the top of the most popular European countries in Central and Eastern Europe as an investment location. Last but not least, it is also due to the ability to respond quickly and flexibly to existing trends and needs in the market. The economic growth that has been sustained for years is expected to continue, although probably not with the same momentum and to the same extent as before. Sustaining productivity growth – and thus the basis for Slovakia's economic convergence – requires sustainable structural reforms and targeted investments in infrastructure, research and innovation. Improving the quality and integration of the education and training system, reducing regional disparities and improving the quality of public institutions can help Slovakia secure its competitiveness, move up the value chain and become more sustainable. In addition, the economy is expected to regain momentum in the coming years, mainly due to the provision of EU funds.