Weekly Briefing, Vol. 29, No. 2 (SK), May 2020
Economy opening and new economic outlook for Slovakia
Overview
During the second half of the April, because of the development in the corona virus pandemics in Slovakia, Prime Minister Igor Matovic introduced four phases of opening up of the Slovak economy on April 20. The first phase started on April 22, the others were supposed to ideally follow every two weeks, depending on the development of the epidemiological situation (bzm, 2020). The development of coronavirus infections were, and still are, regularly evaluated based on the seven-day moving median of daily gain in patients with COVID-19 while looking at daily increments. There was either a transition to a new phase, the retention of the current one or a return to the previous phase. If the result of the indicator is less than one hundred, the facilities were to be opened according to the schedule (table 1). However, if the increase in those infected was to reach above 150 per day, even those facilities that have been opened were to be closed again (Bariak and Hopková, 2020). If less than 100 people were to be infected every day, a new phase will be adopted within two weeks. If the median were to oscillate between 100 and 150 people a day, the measures were to stay the same. As noted by Gulisová (2020), because of the positive development in the seven-day moving median, the last phase, which was supposed to open in June, started already on May 20 with phases two and three opened at once on May 6 when only phase two was supposed to open. Without any change is still special opening hours for pensioners who have to go shopping preferentially between 9 and 11 am.
Table 1 Phases of the economy opening
| Phase 1 | Phase 2 | Phase 3 | Phase 4 |
| Shops measuring up to 300 square meters in size | Accommodation (short-term, food delivered to room, toilette with bathroom, no other services. Room must remain empty for 24 hours after guest departure) | Shops and services (hand disinfection, 15 square meters per customer, 2-metre distance between customers) | Cinemas, theatres and other mass events (100 people max) |
| Services measuring up to 300 square meters in size | Hairdresser’s, barber’s, manicure and pedicure salons, cosmetic care and solariums. Tattoo and piercing salons open on May 20. | Restaurants with outdoor seating (outdoor “terraces”, 2-metre distance between table edges and disinfection of surfaces after guests leave, 2 people max or parents with children at one table, toilet with hand disinfection, single-use towels and no hand driers. Bathrooms need to be disinfected every hour) | Shopping centers (apart from playgrounds) |
| Public catering (through a window) | Outdoor tourist attractions | Rehabilitation services (dry procedures only) | Kindergartens and schools (from June 1) |
| Outdoor sports venues (contactless sports, without changing rooms, without an audience, without a WC) | Taxi services (conditions to be specified) | Museums, galleries, libraries and exhibition halls (conditions to be specified) | Indoor sports venues and indoor swimming pools (for sports teams only) |
| Accommodation (long-term, without catering) | Masses and weddings (conditions to be specified) | Outdoor sports venues (without changing rooms, without an audience) | |
| Outdoor marketplaces (conditions to be specified) | Restaurants with indoor seating | ||
| The selling points of vehicles including pre-owned cars | Borders (without a test and mandatory quarantine if people return in 24 hours) | ||
| No masks when outdoor if the distance from others is 5 meters | |||
| Meetings set by law (no limit for participants) | |||
| Indoor tourist attractions, except for zoos and botanical gardens |
Source: Ministerstvo kultúry (2020), SITA (2020).
New economic outlook for Slovakia[1]
Beracka (2020) notes that in original March forecast, the NBS presented three scenarios based on two major assumptions: 1. Economy will be closed for sixty days and 2. Government measures not taken into account (since the measures were still being prepared and their final form was unknown). All scenarios expected the economy to decline with medium pessimistic scenario with a decline of 4.5% and an ideal, or most favorable, scenario with a decline of only 1.4%. on the other hand, the worst case scenario assumed a significant disruption of global value chains in the global trade, with the emergency situation expected to last until the summer of 2020. This scenario expected the Slovak economy to decline by 9.4%. As Beracka (2020) notes, the NBS considered the decline from 4.5% to 9.4% to be the most probable. Based on the update and table 2, we note that the updated forecast puts the medium-unfavorable April forecast (scenario B) to the worst of the original forecast. The most optimistic scenario (A) expects a decline of 5.8%. The NBS identifies the B scenario as the most probable, which counts on a decline of 9.3%.
Table 2 Macroeconomic development – NBS scenarios
| Indicator | Scenario A | Scenario B | Scenario C | ||||||
| (annual percentage change) | 2020 | 2021 | 2022 | 2020 | 2021 | 2022 | 2020 | 2021 | 2022 |
| Gross domestic product | -5.8 | 8.3 | 4.5 | -9.3 | 8.0 | 4.3 | -13.5 | 7.2 | 4.2 |
| Private consumption | -5.9 | 6.9 | 4.1 | -10.6 | 8.3 | 3.2 | -14.0 | 8.1 | 3.2 |
| Final consumption of general government | 3.0 | 2.3 | 1.6 | 3.1 | 2.2 | 1.5 | 3.2 | 2.3 | 1.2 |
| Gross fixed capital formation | -16.4 | 14.6 | 9.4 | -19.4 | 11.7 | 9.5 | -25.9 | 5.3 | 10.7 |
| Export of goods and services | -8.3 | 10.9 | 6.0 | -11.8 | 9.4 | 6.4 | -17.8 | 9.1 | 7.0 |
| Employment | -1.2 | -0.1 | 0.8 | -1.6 | -0.8 | 0.8 | -2.5 | -1.9 | 1.0 |
| Unemployment rate (%) | 7.0 | 7.4 | 7.0 | 7.4 | 8.3 | 7.7 | 8.2 | 10.1 | 9.5 |
| Wage | -2.5 | 8.3 | 6.4 | -3.4 | 8.3 | 6.1 | -5.3 | 8.8 | 6.1 |
| HICP inflation | 1.8 | 1.1 | 1.8 | 1.8 | 1.0 | 1.7 | 1.8 | 0.8 | 1.6 |
| Foreign demand | -7.3 | 9.2 | 4.9 | -10.4 | 7.5 | 4.9 | -16.6 | 7.8 | 4.8 |
Source: NBS (2020).
Conclusion
An interval of at least 2 weeks was expected between the individual release phases. Increasing the number of infected could slow or stop the release of next phase. On the contrary, the favorable epidemiological situation and the low incidence of new cases allowed the release process to be accelerated. The latter happened in Slovakia, since the seven-day moving median was far below the 100 infected per day. Therefore, phases two and three were released at once on May 6 after the firs opening phase took place on April 22. Phases two and three were followed in two weeks by phase four, which was supposed to be released only on June 3.
Despite the economy opening, there are still some regulations in place, mainly wearing a mask (Ministerstvo hospodárstva, 2020), even though there are some exceptions:
- Wearing a mask outdoors will be voluntary only if it is possible to keep a distance of at least 5 meters from other people,
- In the case of family members, wearing a mask outdoors will not be mandatory,
- Obligation to wear a mask everywhere in interiors outside their place of residence continues to apply to all persons in the territory of the Slovak Republic,
- Children up to 2 years,
- People with severe autism spectrum disorders,
- Persons in a closed vehicle, if all persons in the car are from the same household,
- Public transport drivers who are in a closed cabin separate from the rest of the passenger area,
- Persons performing sports on indoor or outdoor sports grounds,
- Person photographed for the time necessary to carry out the shooting process,
- Bride and groom at the wedding.
Based on the most recent forecast from the NBS (2020), we conclude following:
- Slovak economy will probably contract between 5.8% and 13.5% in 2020, with the most probable current estimate being a decline in the region of 9%.
- Government measures will help mitigate the increase in unemployment with the NBS estimation of around 50 thousand jobs under threat in 2020.
- General government deficit for 2020 will be between 6.9% and 10.3% of GDP and the government debt-to-GDP ratio will increase to between 57% and 64%.
As noted in the outlook update (NBS, 2020), we assume the key risks to the outlook will be mainly 1. Ongoing uncertainty about the future progress of the coronavirus pandemics and 2. Uncertainty about the implementation of lockdown measures, and 3. Behavior of financial markets and consumers. According to TASR (2020), support for job retention and self-employment is comparable to other European countries, but the state is lagging behind in liquidity measures, such as deferrals of certain payment obligations, loans or guarantees for households and businesses. Regarding the support from the state, direct aid from the budget represents 3.2% of gross domestic product (GDP), tax and levy deferrals 1.2% of GDP and aid in the form of other liquidity amounts to 1.6% of GDP (TASR, 2020).
References:
- Bariak, L. – Hopková, D. (2020). Koronavírus: Premiér povedal, ako sa budú otvárať obchody. Available on-line: https://www.aktuality.sk/clanok/783924/koronavirus-premier-i-matovic-povedal-ako-sa-budu-otvarat-obchody/.
- Beracka, J. (2020). NBS ukázala výrazne horšie čísla o prepade ekonomiky, klesnúť môže o 13,5 percenta. Available on-line: https://www.trend.sk/spravy/nbs-zhorsila-prognozu-ekonomika-moze-prepadnut-9-percent.
- (2020). Matovič predstavil štyri fázy otvárania ekonomiky. Takto sa budú otvárať prevádzky. Available on-line: https://slovensko.hnonline.sk/2133615-matovic-predstavil-styri-fazy-otvarania-ekonomiky-takto-sa-budu-otvarat-prevadzky.
- Gulisová, S. (2020). Úplné otvorenie ekonomiky sa nekoná, no približujeme sa. Matovič predstavil štvrtú fázu. Available on-line: https://www.forbes.sk/uplne-otvorenie-ekonomiky-sa-nekona-no-priblizujeme-sa-matovic-predstavil-stvrtu-fazu/.
- Ministerstvo hospodárstva. (2020). Available on-line. https://www.mhsr.sk/koronavirus/vyklad-uvz-sr-k-sposobu-urcovania-moznosti-otvorenia-prevadzok/plan-dalsieho-otvarania-prevadzok.
- Ministerstvo kultúry (2020). Fázy uvoľnenia korona opatrení. Available on-line: http://www.culture.gov.sk/ministerstvo/covid-19/fazy-uvolnovania-opatreni-384.html.
- (2020). Strednodobá predikcia. Available on-line: https://www.nbs.sk/sk/publikacie/strednodoba-predikcia.
- (2020). How Matovič imagines the lifting of coronavirus measures. Available on-line: https://spectator.sme.sk/c/22387787/how-matovic-imagines-the-lifting-of-coronavirus-measures.html.
- (2020). Inštitút finančnej politiky hodnotil opatrenia. Slovensko zareagovalo primerane, tvrdí. Available on-line: https://finweb.hnonline.sk/ekonomika/2133923-institut-financnej-politiky-hodnotil-opatrenia-slovensko-zareagovalo-primerane-tvrdi.
[1] Data in this part taken from NBS (2020).