COMMISSION STAFF WORKING DOCUMENT In-depth review for Slovakia Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2023 European Semester – Spring Package
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: European Semester, Slovakia, competitiveness, economic policy, energy policy, household, housing policy, indebtedness, macroeconomics, property market

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 643 final  COMMISSION STAFF WORKING DOCUMENT In-depth review for Slovakia Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK 2023 European Semester – Spring Package           {COM(2023) 600 final} - {SWD(2023) 628 final} - {SWD(2023) 629 final} - {SWD(2023) 630 final} - {SWD(2023) 631 final} - {SWD(2023) 632 final} - {SWD(2023) 633 final} - {SWD(2023) 634 final} - {SWD(2023) 635 final} - {SWD(2023) 636 final} - {SWD(2023) 637 final} - {SWD(2023) 638 final} - {SWD(2023) 639 final} - {SWD(2023) 640 final} - {SWD(2023) 641 final} - {SWD(2023) 642 final} - {SWD(2023) 644 final}  
 
 
Slovakia 

In-Depth Review 2023 

 
 
 
 
 
 
 
 
 
 
 
On  the  basis  of  this  in-depth  review  for  Slovakia  undertaken  under 
Regulation  (EU)  No  1176/2011  on  the  prevention  and  correction  of 
macroeconomic  imbalances,  the  Commission  has  considered  in  its 
Communication “European Semester – 2023 Spring Package” (COM(2023) 
600 final) that: 

Slovakia  is  not  found  to  experience  imbalances.  Vulnerabilities  relating  to 
competitiveness,  housing,  household  debt  and  external  balance  have  been 
increasing, but overall seem contained in the near future and are expected to ease 
as  economic  conditions  normalise.  The  economy  was  strongly  hit  by  the  energy 
prices shock with inflation rising fast. Core inflation and unit labour costs growth 
are well above the euro area average While they are forecast to normalise, there 
is the risk that pressure on cost competitiveness could take time to unwind, and 
that strong domestic demand will continue to put pressures on external accounts. 
The current account deteriorated markedly in 2022 owing to higher energy import 
prices  as  well  as  marked  falls  in  net  exports  of  non-energy  goods.  The  current 
account  deficit  is  forecast  to  improve  mildly  but  to  remain  large  in  2023  and 
2024,  despite  the  falling energy  prices.  Nonetheless,  external  sustainability  risks 
are assessed to be limited in the near term. Government deficits are forecast to 
be significant this year and next and to correct from 2024. House prices appear to 
be  mildly  overvalued  after  several  years  of  marked  growth.  That  occurred 
alongside  high  borrowing,  which  is  now  cooling,  and  a  strong  increase  in 
household  debt,  which  altogether  present  some  risk  for  financial  stability. 
However,  the  banking  sector  remains  well  capitalised,  highly  profitable  and 
recording  low  non-performing  loans.  Continued  efforts  are  needed  to  tackle 
Slovakia’s economic vulnerabilities. In particular, excess demand should be reined 
in  to  support  the  correction  of  the  current  account  deficit  and  the  core  inflation 
differential vis-à-vis the rest of the euro area. That can be achieved by ensuring 
adequate  fiscal  consolidation  and  measures  to  address  household  debt,  while 
retaining housing affordability through property taxation and measures supporting 
housing supply. 

 
 
 
 
 
 
 
 
CONTENTS 

1.  Introduction 

2.  Assessment of macroeconomic vulnerabilities 

3.  Thematic chapter: household debt 

LIST OF TABLES 

Table 2.1: 
Table 2.2: 
Table 3.1: 
Table 3.2: 
Table 3.3: 

Selected economic and financial indicators (Part 1), Slovakia 
Selected economic and financial indicators (Part 2), Slovakia 
Private debt indicators, Slovakia 
Selected housing market indicators, Slovakia 
Selected household debt indicators, Slovakia 

LIST OF GRAPHS 

Graph 2.1:  Unit labour cost and real effective exchange rate developments 

Graph 2.2:  Reer and productivity in GDP per capita (in chain linked volumes 2010, euro per capita) 

Graph 2.3:  Core and headline inflation evolution 

Graph 2.4:  Current account 

Graph 2.5:  Export/imports growht and domestic absorption 

Graph 2.6:  NLB and financial account 

Graph 2.7:  Net international investment position 

Graph 2.8:  House price evolution 

Graph 2.9:  Components of gross fixed capital formation deflator growth and consumer price inflation 

Graph 3.1:  Household debt and loans 

Graph 3.2:  Mortgage rate and new loans 

Graph 3.3:  Demand for housing loans 

4 

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29 
30 

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25 

27 

 
 
 
 
 
 
 
1. 

INTRODUCTION 

In  2022,  over  the  previous  annual  cycle  of  surveillance  under  the  Macroeconomic 
Imbalance Procedure (MIP), Slovakia was not subject to an in-depth review to assess its 
vulnerabilities. (1) The 2023 Alert Mechanism Report published in November 2022 concluded that 
an in-depth review (IDR) should be undertaken for Slovakia this year, with a view to examine newly 
emerging  vulnerabilities  and  their  implications. The  AMR  concluded  that  in  Slovakia,  concerns 
related to cost competitiveness and house price developments existed already before the COVID-19 
pandemic  and  were  increasing.  Nominal  unit  labour  cost  growth  was  set  to  accelerate,  and  core 
inflation  was  very  high  compared  with  Slovakia’s  euro  area  peers.  Strong  house  price  growth 
continued and was accompanied with sustained increases in household debt over recent years. The 
current  account  deficit  was  increasing  strongly.  The  high  government  deficit  warranted  close 
monitoring. (2)  

The  Slovak  economy  slowed  down  in  2022  and  2023  amidst  an  uncertain  economic 
environment. (3) The economic recovery from the COVID-19 crisis came to an abrupt end in 2022, 
when  Russia’s  invasion  of  Ukraine  placed  a  drag  on  the  economy  by  triggering  supply  chain 
disruptions and a surge in energy prices. Slovakia experienced a slowdown in GDP growth to 1.7% 
in  2022,  compared  to  4.9%  in  2021.  GDP  growth  is  forecast  at  1.7%  in  2023  and  to  pick  up  to 
2.1%  in  2024.  Economic  activity  is  dampened  by  the  deterioration  of  global  growth  prospects, 
resulting  in  reduced  confidence  of  economic  agents,  and  the  prolonged  pressure  on  prices, 
adversely impacting demand. Inflation has picked up  from 2.8% in  2021 to 12.1% in 2022, with 
energy and food prices passing through to prices of other goods and services. As the governmental 
measures start being phased out in 2024, energy inflation will remain strong. Consumer food prices 
grew swiftly in Q1 2023 and labour market tightness is set to contribute to more persistent growth 
of  prices  in  the  service  sector.  Therefore,  inflation  is  forecast  at  10.9%  in  2023  and  at  5.7%  in 
2024.  This represents a significant inflation difference to the other EU countries posing a risk to 
cost  competitiveness  along  with  a  further  deterioration  of  the  trade  balance  given  Slovak 
economy’s dependence on exports.  

This  in-depth  review  presents  the  main  findings  of  the  assessment  of  macroeconomic 
vulnerabilities for Slovakia. The assessment is backed by a thematic section on household debt. 
Vulnerabilities  related  to  competitiveness,  external  balances  and  housing,  in  Slovakia  are  also 
discussed  in  horizontal  thematic  notes  that  that  were  recently  published. (4)  The  MIP  assessment 
matrix is published in the 2023 Country Report for Slovakia. (5) 

(1)  European Commission (2022), European Semester Spring Package 2022, COM(2022) 600 final. 

(2)  European Commission (2022), Alert Mechanism Report 2023, COM (2022) 381 final. 

(3)  European Commission (2023), European Economic Forecast: Spring 2023, Institutional Paper 200. 

(4)  European Commission (2023), Housing Market Developments: Thematic Note to Support In-Depth Reviews, European 
Economy: Institutional Papers, 197. European Commission (2023), Inflation Differentials in Europe and Implications for 
Competitiveness: Thematic Note to Support In-Depth Reviews, European Economy: Institutional Papers, 198. European 
Commission (2023), External Sustainability Analysis: Thematic Note to Support In-Depth Reviews, European Economy: 
Institutional Papers, 196. 

(5)  European Commission (2023), Country Report Slovakia 2023, SWD(2023) 625 final. 

4 

 
                                                 
 
2.  ASSESSMENT OF MACROECONOMIC 
VULNERABILITIES 

Gravity, evolution and prospects 

Inflation  has  been  elevated  in  recent  years  and  accelerated  strongly  as  of  mid-2021, 
diverging  further  from  the  EA  average.  Both  headline  and  core  inflation  are  substantially 
higher  than  the  euro  area  average.  The  possibility  of  higher  inflation  becoming  persistent  raises 
concerns  over  a  possible  decrease  in  Slovakia’s  competitiveness.  External  balances  deteriorated, 
driven  primarily  by  the  sharp  increase  in  energy  prices  and  the  current  account  turned  strongly 
negative after a long period of moderate deficits. In parallel, the Slovak economy has experienced 
very  rapid  house  price  growth  over  the  last  two  years,  accompanied  by  strong  credit  flows  to 
households.  This  IDR  examines  these  effects  to  assess  the  extent  of  vulnerabilities  facing  the 
Slovakian economy and whether they are cause for concern over the near future. 

Competitiveness 

On  5  April  2023  the  Commission  published  a  horizontal  thematic  note  on 
competitiveness,  which  also  covers  Slovakia.  It  showed  that  unit  labour  costs  have  grown 
faster than in other European countries over the last decade, as wage growth outpaced productivity 
growth.  Slovakia’s  core  and  HICP-based  REERs  have  been  appreciating  continuously  since  2015. 
While inflation is high and strongly accelerated in 2022, both on account of imported inflation, and 
of inflation in domestic value added; domestic inflation plays a relatively limited role in the overall 
increase in export prices. This could be linked to Slovakia’s integration in European manufacturing 
supply chains, producing goods exports with very high import content. As export prices are almost 
fully driven by import price developments, there are no major concerns yet about more persistent 
price  competitiveness  losses.  At  the  same  time,  current  inflation  developments  could  lead  to  a 
lasting  deterioration  in  economy’s  competitiveness  if  the  inflation  differential  persists  and  is 
possibly associated with higher wage growth.  

Unit labour costs (ULC) have been on the rise since 2015 and are likely to accelerate in 
the  near  term.  Since  2015,  nominal  unit  labour  cost  (ULC)  growth  in  Slovakia  has  been 
consistently  above  the  EU  and  EA  averages.  The  average  annual  growth  of  unit  labour  costs  in 
Slovakia  was  4.6%  over  the  years  2015-2022,  compared  to  an  EU  average  of  2.0%  and  an  EA 
average  of  1.9%.  Unit  labour  cost  growth  was  underpinned  by  steady  nominal  wage  growth 
exceeding  5%  since  2017.  While  real  wage  growth  was  also  relatively  strong  and  outpaced 
productivity until 2021, inflation differentials played an increasing role as of 2017. In 2022, due to 
skyrocketing inflation, real wages declined – and more strongly so than in the EU and EA. They are 
expected to further decline in 2023, as firms are under pressure from high energy costs and have 
little room to raise wages. In 2024, a partial recovery of real wages is expected in spite of inflation 
remaining relatively high, bringing nominal wage growth to 7.5%, and giving another boost to ULC 
growth  as  productivity  lags  behind.  Slovak  labour  market  is  very  tight,  and  the  situation  is  not 
expected to improve given the labour demand and falling population. The differential of inflationary 

5 

 
 
 
2. 

Assessment of macroeconomic vulnerabilities 

developments  in  Slovakia  represents  a  significant  risk  for  the  ULC  growth  in  2023  and  2024, 
having a potentially detrimental effect on Slovak competitiveness (graph 2.1 a). 

The  real  exchange  rate  has  been  appreciating  and  is  now  estimated  to  be  overvalued. 
Slovakia experienced a real appreciation of both HICP and ULC-based REERs over the period 2016-
2022 and a Commission analysis points to a possible overvaluation of REERs both in terms of HICP 
and ULC (graph  2.1a ). (6)  Medium to large REER overvaluation in 2021 was also observed in the 
IMF model estimations. (7)  In 2021 and 2022, the main contribution to headline REER appreciation 
was the core inflation differential with the euro area, while energy and food inflation differentials 
even  contributed  negatively  (graph  2.2  a).  The  Commission  forecast  on  continued  strong  ULC 
growth in 2023 and 2024 is likely to imply further appreciation of ULC-based REERs. 

Graph 2.1: Unit labour cost and real effective exchange rate developments 

Source: European Commission services 

The  rate  at  which  Slovakia  was  catching  up  with  the  other  EU  countries  in  terms  of 
productivity growth has slowed down compared to the early 2000s. Slovakia was growing 
faster than the other EU countries in terms of productivity until 2015. Afterwards, productivity has 
been growing at a slower pace in Slovakia in comparison with peer countries (graph  2.2 b). Lower 
productivity growth can be partially explained by lower FDI inflows and an associated slowdown in 
technological  progress.  In  addition  to  ongoing  demographic  shifts,  the  shortage  of  skilled  labour 
also reflects remaining weaknesses in the domestic education sector, which are likely to contribute 
to weak productivity and innovation outcomes. 

(6)  European Commission (2023), XXX, COM (2023) XXX final. (Cost competitiveness note) 

(7)  2022 ARTICLE IV CONSULTATION - SLOVAK REPUBLIC, IMF Country Report No. 22/202 

6 

-10-50510150708091011121314151617181920212223*24*Rate of change y-o-y (%)a) Decomposition of rate of change of ULCInflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU279510010511018192021222019=100a) Reel effective exchange ratevs. 42 partners, based on headline inflationvs. EA19, based on headline inflationvs. EA19, based on core inflationvs. 42 partners, based on core inflation             
                                                 
Graph 2.2: Reer and productivity in GDP per capita (in chain linked volumes 2010, euro per capita) 

2. 

Assessment of macroeconomic vulnerabilities 

Source: European Commission services 

Inflation in Slovakia grew rapidly in 2022 and the first quarter of 2023; and persistent 
inflation  differentials  could  adversely  affect  cost  competitiveness  going  forward. 
Headline inflation in Slovakia consistently outpaced inflation in the EU and the EA  over the period 
2018-2021. It then accelerated as of mid-2021 in the aftermath of the pandemic. In 2022 it shot 
up,  to  12.1%  (from  2.8%  in  2021),  as  a  result  of  the  Russian  invasion  of  Ukraine  and  the  rapid 
increase in energy prices that accompanied it, causing it to further diverge from the EU average (at 
9.2%) and the EA average (at 8.4%). Like in other countries in the region, core inflation in Slovakia 
was considerable as well, at 10.4%; whereas it remained more contained in the EU (4.7%) and the 
EA  (4.0%).  On  the  other  hand,  the  contribution  of  energy  prices  to  overall  HICP  inflation  was 
significantly lower in Slovakia than in neighbouring countries reliant on energy imports. In the first 
months of 2023, inflation continued to accelerate in Slovakia. Even if energy inflation is expected 
to  subside,  headline  inflation  is  expected  to  remain  high  even  in  2024,  above  levels  forecast  for 
other  EA  member  states.  If  inflation  differentials  with  other  euro  area  countries  or  other  major 
trade partners of Slovakia persist, and feed into wage increases, Slovakia’s price competitiveness 
risks eroding even further. 

7 

-5051019202122% change year-on-yeara) Contribution to REER change yoydue to REER change with non-EA partnersdue to energy&food infl. differential with EA19due to core inflation differential with EA19due to exchange rate with EURREER change YoY050001000015000200002500030000350001995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022b) Productivity in GDP per capitaEU27EA19CZHUPLSK            
 
Graph 2.3: Core and headline inflation evolution 

2. 

Assessment of macroeconomic vulnerabilities 

Source: European Commission services 

Potential  competitiveness  losses  resulting  from  high  inflation  may  deteriorate  the 
performance of the export sector. Export market shares and the real exchange rate had been 
broadly  stable  until  2020.  Slovak  exporters  lost  part  of  their  market  shares  in  2021  and  2022, 
likely caused by supply disruptions. As supply bottlenecks resolve, Slovakia may regain some of the 
losses. Still, real appreciation driven by high inflation differentials worsened the position of Slovak 
exporters  in  2022.  As  the inflation  slowdown is likely  to be  more  sluggish  than  in  the  euro  area, 
real appreciation may continue. In addition, nominal wage growth has picked up recently. Although 
more persistent wage growth above inflation is unlikely, the cumulative growth of labour cost is set 
to weigh on businesses unless countered by productivity gains. Still, the competitiveness losses in 
general,  and  the  recent  energy  price  shock  in  particular,  are  unlikely  to  lead  to  a  substantial 
relocation  of  production  or  large  shifts  in  the  Slovak  economy  in  the  short  term.  The  deep 
integration in the supply-chain ecosystem for motor vehicles cannot be easily replicated elsewhere. 

Slovakia’s reliance on low value-added activities represents a vulnerability in a context 
of  deteriorating  cost  competitiveness.  Slovakia  ranks  at  the  bottom  of  the  EU  regional 
competitiveness index (RCI). (8)  Transformation readiness of Slovakia is also very low while it has 
one of the highest shares of jobs at risk of automation in the OECD. (9)  Slovakia benefits from a 
strong integration in global value chains. However, its role focuses mostly on assembly of imported 
items; resulting in a high share of foreign inputs and a very small share of domestic value added in 
exports.  Moreover,  production  and  exports  are  concentrated  strongly  on  the  electronics  and 
automotive sectors, which are expected to be strongly affected by structural change as a result of 
the green and digital transition. (10)  

The  impact  of  the  present  inflation  differentials  on  price  competitiveness  and  the 
sustainability  of  the  external  position  can  be  a  risk  that  warrants  close  monitoring.  In 
the  past,  factors  promoting  non-price  competitiveness  seem  to  have  successfully  countered  the 
impact of deteriorating price competitiveness on Slovakia’s export performance in spite of years of 
steady  REER  appreciation.  Slovakia’s  starting  point  of  comparatively  low  labour  costs  vis-à-vis 
many  other  EU Member  States  and  progressive  integration  into  global value  chains  has  certainly 

(8)  EU Regional Competitiveness Index 2.0 - 2022 edition, https://ec.europa.eu/regional_policy/assets/regional-

competitiveness/index.html#/  

(9)  The Global Competitiveness Report SPECIAL EDITION 2020, World Economic Forum, How Countries are Performing on the 

Road to Recovery, https://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2020.pdf  

(10)  Giorno, C. (2019) Increasing the benefits of Slovakia’s integration in global value chains. OECD Economics Department 

Working Papers No. 1552. https://one.oecd.org/document/ECO/WKP(2019)21/En/pdf  

8 

-6-4-2024681012141920212223% growth year on yeara) Core inflation year on year, Slovakia compared to EA-50510152025301920212223% growth year on yearb) Headline inflation year on year, Slovakia compared to EA             
                                                 
played  a  beneficial  role.  At  the  same  time,  future  developments  remain  fraught  with  uncertainty 
and Slovakia’s future export performance will depend on absorbing the effects of high inflation and 
productivity growth consolidating. 

2. 

Assessment of macroeconomic vulnerabilities 

External balances 

On  5  April  2023  the  Commission  presented  a  horizontal  thematic  note  on  external 
sector’s  sustainability,  which  also  covered  Slovakia.  The  note  analysed  the  decline  in 
Slovakia’s current account in 2021 and in the first three quarters of 2022, which was one of the 
sharpest  among  the  EU  countries.  It  was  mainly  driven  by  the  evolution  in  the  balance  of  trade, 
which  was,  in  turn,  largely  determined  by  the  worsening  balance  of  trade  in  energy  goods,  amid 
increasing energy prices. While the deterioration of the energy balance accounted for most of the 
trade balance decline in 2022, the balance of trade in goods excluding energy also worsened. As 
the deterioration in the balance of trade was largely driven by the worsening terms of trade, the 
decline  was  smaller  when  trade  flows  are  measured  in  constant  prices.  Slovakia  also  has  a 
significantly negative net international investment position (NIIP), which is below the MIP indicative 
threshold of -35% of GDP, as well as below the fundamental and prudential NIIP thresholds. The 
NIIP excluding the non-defaultable (NENDI) instruments was much less negative. 

Graph 2.4: Current account 

Source: European Commission services 

Slovakia’s  current  account  has  continued  to  deteriorate  throughout  2022  and  is  below 
the level explained by economic fundamentals. Before the pandemic crisis, Slovakia had been 
recording moderate current account deficits, which had gradually deteriorated and reached  -3.3% 
of GDP in 2019. After improving briefly to -0.6% in 2020, it declined to -2.5% of GDP in 2021 and 
to  -8.2%  in  2022  (see  graph  2.4a).  It  is  now  far  below  the  level  suggested  by  the  economic 
fundamentals,  but  also  below  the  current  account  levels  required  to  reach  the  prudential  NIIP 
threshold or stabilise the NIIP over the next ten years. The fall in the current account after 2020 
was one of the sharpest among the EU countries. It was mainly driven by movements in the goods 
balance,  which  first  improved  by  more  than  2  pp  to  2.1%  of  GDP  in  2020.  It  then  deteriorated 
to  -0.03%  in  2021  and  continued  to  decline  in  2022  to  -5.7%  in  2022.  The  balance  of  trade  in 
goods dynamics has been largely determined by the energy balance, which worsened from  -2.1% 
of GDP in 2020 to -3.5% in 2021, and with the decline accelerating in 2022 to -6.6% of GDP. This 
development has mostly been caused by the soaring energy prices, which have recently been the 
major  driving  force  in  shaping  the  overall  current  account  movements  (graph  2.4  b).  In  addition, 

9 

-12-10-8-6-4-2024681920212223% of GDP*Data up to 2023M02 b) Trade balanceEnergy bal in 2019 pricesEnergy price impactOther goods balanceServices balanceIncome balanceCurrent account bal-15-10-5051015161718192021222223*24*% of GDPa) Decomposition of external positionGoods, fcastServices, fcastGoods excl energyEnergy balanceServices excl travelTravel balancePrimary inc. bal.Second. inc. bal.Current accountNet lending/borrowing 
        
2. 

Assessment of macroeconomic vulnerabilities 

also balance of trade in goods excluding energy deteriorated significantly in 2022, from 3.0% of 
GDP in 2021 to 0.6% in 2022. Further, albeit smaller, contributions to the declining current account 
came from the balance of trade in services and the primary income account.  

In 2022, the changes of the overall export and import flows have mainly been driven by 
the  changes  in  deflators.  After  a  strong  fall in  trade  flows  during  the pandemic crisis, exports 
and imports of goods and services recovered to, i.e. exceeded, the pre-pandemic values already in 
Q2 and Q3 2021, respectively (graph  2.5c). (11)  The recovery was mainly driven by the change in 
volumes of trade, while price changes remained relatively contained until the last quarter of 2021. 
However,  especially  in  2022,  contributions  to  changes  in  trade  from  the  changes  in  deflators 
became  dominant  (graph  2.5  d),  with  much  steeper  increases  in  prices  of  imported  goods  and 
services, than of exported, being the main factor behind the worsening trade balance. As exports 
and imports in constant prices changed less in 2022, the trade balance did not deteriorate by as 
much  in  real  terms  as  it  did  when  trade  flows  are  measured  in  current  prices.  The  alternative 
perspective (graphs 2.5a and b) shows the developments in output and domestic demand, with the 
growth  of  the  latter  considerably  outpacing  GDP  growth,  in  current,  but  also  in  constant  prices, 
pulling  down  the  trade  balances  in  2022.  The  price  effects  were  dominant,  as  the  changes  in 
demand  deflator  exceeded  those  of  the  output  deflator.  The  decomposition  of  domestic  demand 
shows again that dynamics were determined mostly by the deflators, especially for consumption. 
Domestic  demand  grew  in  real  terms,  mainly  driven  by  real  consumption  developments  but  with 
some positive contribution coming also from real investment (graphs 2.5e and f). 

(11)  When measured in constant prices, both exports and imports reached the pre-pandemic levels already in Q2 2021. 

However, they remained rather stagnant thereafter, likely also reflecting the supply chain disruptions. In particular, many 
industries began to significantly delay production due to late chip deliveries. Among others, several car companies were 
forced to limit production. Thus, for Slovakia's export-oriented economy with a high share of cars in total exports (25% in 
2021), bottlenecks in supply chains have been a significant slowing factor. 

10 

                                                 
Graph 2.5: Export/imports growht and domestic absorption 

2. 

Assessment of macroeconomic vulnerabilities 

Source: European Commission services 

The  government  deficit  decreased  in  2022  but  is  expected  to  increase  in  2023  due  to 
costs  of  the  support  measures  in  the  energy  crisis.  Households  significantly  reduced  their 
energy  consumption,  and  market  prices  are  already  below  the  governmental  price  cap.  The  large 

11 

-8-6-4-202468-150-100-5005010015020152016201720182019202020212022bn nat. curr.c) Exports and imports, in bn nat currM, const prices, inversedX, constant pricesM, price impact, inversedX, price impactX-M, current prices, rhsX-M, constant prices, rhs-30-25-20-15-10-50510152020152016201720182019202020212022in %d) Decomposition of exports and imports growthΔX, constant pricesΔM, constant prices, inversedΔX deflatorΔM deflator, inversed-8-6-4-202468-150-100-5005010015020152016201720182019202020212022bn nat. curr.a) Output and absorption in bn nat currC+I, const prices, inversedGDP, const pricesC+I, price imp, inversedGDP, price impactGDP-(C+I) curr prices rhsGDP-(C+I) const prices rhs-2002040608010012014020152016201720182019202020212022bn nat. curr.e) Consumption and investment in bn nat currC, const pricesI, const pricesC, price impactI, price impactC+I, constant pricesC+I, current prices-20-15-10-505101520152016201720182019202020212022in %b) Decomposition of output and absorption growthΔ(C+I), const. prices, inversedΔGDP, const. pricesΔ(C+I) deflator, inversedΔGDP deflator-10-50510152020152016201720182019202020212022in %f) Decomposition of domestic demand growthΔC, constant pricesΔI, constant pricesΔC deflatorΔI deflatorΔC+I, constant pricesΔC+I, current prices  
2. 

Assessment of macroeconomic vulnerabilities 

government deficits observed in 2020 and 2021 subsided somewhat in 2022, from 5.4% of GDP to 
2.0% (graph  2.6a).  As the worsening of the private sector’s position in 2022, both of households 
and corporates, have exceeded the improvement in government net borrowing, the total economy’s 
net position deteriorated further, from -2.4% of GDP in 2021, to -7.9% in 2022. After accounting 
for the transfers from the EU budget under the RRF and the MFF, which are an important source of 
external  finance,  the  recent  deficit  has  primarily  been  financed  by  net  inflows  in  form  of  other 
investment  debt  instruments  (graph  2.6b).  In  addition,  while  foreign  direct  investment  started 
flowing  in  again  in  net  terms,  outflows  in  form  of  portfolio  investment,  both  equity  and  debt, 
continued.  

Graph 2.6: NLB and financial account 

Source: European Commission services 

The  current  account  deficit  is  expected  to  close  only  gradually.  As  the  energy  prices 
moderate and temporary supply chain disruptions subside, Slovak exports of goods should regain 
traction.  Overall  Slovak  exports  are  expected  to  grow  in  real  terms  at  3%  in  2023  and  6.3%  in 
2024,  against  an  import  growth  of  4.0%  in  2023  and  5.3%  in  2024,  leading  to  a  gradual 
improvement  of the trade  balance.  This  should  help  the  current  account  to  start  improving  as  of 
2023, reaching -7.0% in 2023 and -5.6% in 2024. Faltering export growth in 2022 was caused by 
temporary problems with supplies in industry and temporarily weaker demand for Slovak products. 
The  main  engine  of  Slovak  exports  is  the  automobile  sector  where  bottlenecks  could  remain  in 
2023, although they are expected to be less disruptive than in 2022. Government net borrowing is 
expected to have gone down in 2022, but it is expected to increase again in 2023 due to energy 
measures  and  lower  revenues.  In  2023,  households’  net  position  is  expected  to  remain  negative 
while corporations are expected to turn into net lenders. Some small improvements in the current 
account beyond 2022 should be driven by recovering private sector savings coupled with a small 
decline in private sector investment. 

Over the last decade, the NIIP of Slovakia was broadly stable floating between 60% and 
70%  of  GDP.  Contrary  to  most  EU  countries,  Slovakia  improved  its  NIIP  position  during  the 
pandemic  period  from  -65.6%  in  2019  to  -61%  in  2021.  However,  it  then  deteriorated  slightly 
again, reaching -62.1% of GDP by the end of 2022 (graph 2.7 a), despite a considerable positive 
contribution  from  the  nominal  GDP  growth.  Given  the  substantial  negative  NIIP,  the  contribution 
from  investment  income  has  expectedly  been  consistently  negative  over  a  longer  period,  but  in 
2022 it was reinforced by the substantial negative net transaction effect on the financial account 
excluding the investment income (graph  2.7b). The NIIP remains below the fundamental NIIP and 
the  prudential  threshold.  In  gross  terms,  foreign  direct  investment  account  for  a  large  share  of 
liabilities (graph 2.7d), including equity and intercompany loans, with little reliance on foreign credit 
by the private sector and therefore little risk of capital outflows. Thus, the NIIP excluding the non-

12 

-12-10-8-6-4-202468080910111213141516171819202122% of GDPb) Financial accountDebt flows (net) NENDI excl reservesDirect investment (net)Portfolio investment, equity and inv. fund shares (net)Official reserves (net)Net errors and omissionsNet lending/borrowing (CA+KA)-10-8-6-4-20246810060708091011121314151617181920212223*24*% of GDPa) Net lending/borrowing by sectorHouseholds and NPISHGeneral governmentCorporationsTotal economy            
2. 

Assessment of macroeconomic vulnerabilities 

defaultable  instruments  (NENDI),  at  -18.5%  of  GDP  in  2022,  is  much  more  favourable  than  the 
NIIP.  Slovakia  registered  a  significant  recent  increase  in  assets  and  liabilities  in  form  of  other 
investment (graph 2.7d). Both started decreasing again over the last two quarters, but in net terms, 
the negative stock of other investment widened considerably. As for the sectoral composition, the 
central bank’s position has worsened since 2019, while those of the general government and of the 
private sector improved (graph 2.7 a).  

The outlook for the NIIP over the medium term is negative. As shown by the NIIP projections 
for  the  next  ten  years  (graph  2.7c),  under  the  baseline  scenario,  which  assumes  that  the  trade 
balance  remains  constant  beyond  the  forecast  horizon,  i.e.  after  2024,  the  NIIP  of  Slovakia  is 
projected to worsen and come to around -84% of GDP in 2032. (12) However, as the trade balance 
adjustment following the very strong recent shocks may take longer to unwind, the more positive 
alternative scenario includes assumptions of higher trade balance in 2025 and beyond by 2 pp of 
GDP, as compared to the baseline scenario. The improvement in trade balance in 2025, assumed to 
be driven by lower energy prices and higher exports relative to the baseline, is assumed to lead to 
higher  real  GDP  growth  in  that  year  by  2  pp  of  GDP  as  compared  to  the  baseline.  In  addition,  a 
more negative alternative scenario is also explored, as one cannot exclude the possibility of future 
adverse shocks to energy prices and exports. The more pessimistic scenario assumes lower trade 
balance in 2025 and beyond by 2 pp of GDP, as well as lower real GDP growth in 2025 by 2 pp of 
GDP,  as  compared  to  the  baseline.  The  NIIP  projections  under  the  alternative  scenarios  bring  the 
NIIP  in  2032  down  to  levels  of  around  -68%  of  GDP  under  the  more  optimistic  alternative 
assumptions, i.e. -100% of GDP assuming more adverse developments. 

(12)  The methodology used for the projections is described in European Commission, 2015, 'Refining the methodology for NIIP-
based current account benchmarks', LIME Working Group 17 June 2015; and in European Commission, 2021, ‘External 
sustainability assessment – gauging the impact of the Recovery and Resilience Facility’, Note for the attention of the EPC 
LIME Working Group, 9 September 2021. 

13 

                                                 
Graph 2.7: Net international investment position 

2. 

Assessment of macroeconomic vulnerabilities 

Source: European Commission services 

In  sum,  while  recent  developments  of  the  external  balance  have  been  concerning, 
conditions are likely to start improving going forward, but important risks remain. After 
years of running a moderate current account deficit, conditions swiftly deteriorated as a result of 
the economic consequences of Russia’s invasion of Ukraine. Changes in the trade balance reflected 
mostly price effects, even if net exports also worsened in real terms. Several of the drivers of the 
current  deterioration  are  likely  to  be  temporary;  as  a  result  the  current  account  is  forecast  to 
strengthen, but to still remain in a non-negligeable deficit. Nevertheless, important risks remain. If 
inflation  differentials  persist  and  become  entrenched,  pushing  REERs  to  further  appreciate,  this 
could in the medium term result in deteriorating export prospects and exacerbate the trade deficit 
in the context of an already substantial negative NIIP. 

Housing Market 

On 5 April 2023, the Commission presented a horizontal thematic note on housing, which 
also covers Slovakia. The note documented that housing prices in Slovakia have almost doubled 
in nominal terms over the last decade (Table2.2). The global financial crisis had triggered a sharp 
decline in property prices in Slovakia, when they fell by up to 25%. Subsequently, prices increased 
by  90%  between  2012  and  2022  (Graph2.8  b),  while  disposable  income  increased  by  57%  over 
that  period,  and  over  half  of  this  increase  in  house  prices  took  place  over  the  last  three  years. 
House prices have accelerated mainly since the pandemic, and the house price-to-income ratio is 

14 

-15-10-505101513Q414Q415Q416Q417Q418Q419Q420Q421Q422Q4Change in pp. of GDP (y-o-y)b) Decomposition of rate of change of NIIPValuation changesNet transaction effect (rest FA bal.)Investment income effectNominal growth effectChange in NIIP (y-o-y)0501001502000810121416182022Q4% of GDPd) International investment position, gross componentsOther inv liabOther inv assetsPortfolio inv, debt liabPortfolio inv, debt assetsDirect inv, liabDirect inv, assetsFinanc deriv liabFinanc deriv assetsPortfolio inv, equity liabPortfolio inv, equity assets-100-50015Q416Q417Q418Q419Q420Q421Q422Q4% of GDPa) NIIP by sectorGeneral governmentPrivate sectorMFI (excl central bank)Central bank (incl reserves)Net int'l investment position (NIIP)-110-100-90-80-70-60-50-402122232425*26*27*28*29*30*31*32*% of GDPc) NIIP projectionsScenario 1Scenario 2Baseline     
 
2. 

Assessment of macroeconomic vulnerabilities 

now 30% higher than a decade ago. The strong growth in housing prices occurred on the back of an 
increase in the household debt-to-GDP ratio and dynamic credit growth developments in the past 
decade,  with  a  sharp  acceleration in  recent  years (see  Section  3:  Thematic  chapter  on  household 
debt).  Nominal  house  prices  grew  by  21.3%  year-on-year  in  2022,  while  in  real  terms  they 
increased by 7.7%. These are high growth rates by historical standards and the growth in nominal 
house prices was the third highest among EU countries.  

Slovak  property  prices  appear  to  be  overvalued,  which  present  a  risk  for  financial 
stability alongside household indebtedness. Given the house price increase over the last years, 
the price-to-income ratio now stands over 30% higher than a decade ago and is close to its level in 
the run-up to the global financial crisis. The increase in house prices exceeds rental price growth, as 
the  price-to-rent  ratio  is  86%  higher  than  in  2012  (Graph2.8).  The  Commission’s  house  price 
valuation methodology suggests that prices are overvalued by 12% (the average valuation gap of 
three  methods),  while  the  ECB  estimates  the  overvaluation  of  the  Slovak  housing  market  to  be 
even higher. The valuation estimates are affected by the high increase in house prices relative to 
rents  –  which  is  in  part  driven  by  the  structure  of  the  rental  market  –  but  also  by  the  strong 
increase in house prices relative to incomes that has taken place since the pandemic. In December 
2021, the European Systemic Risk Board (ESRB) issued a warning to Slovakia (13)  about medium-
term  vulnerabilities  in  the  residential  real-estate  market  being  a  potential  risk  to  the  country’s 
financial stability because of the potential house-price overvaluation coupled with the high rate of 
house  price  growth  as  well  as  rising  household  indebtedness  with  pockets  of  risk  related  to 
increasing household indebtedness and high mortgage credit growth. 

The acceleration in house price growth in recent years appears to have been driven by 
favourable  economic  conditions  and  occurred  alongside  a  strong  increase  in  household 
debt  over  the  last  decade.  Before  the  outbreak  of  the  pandemic,  households  benefited  from 
favourable  macroeconomic  development,  notably  high  GDP  growth  and  low  unemployment. 
Historically  low  interest  rates  and  easily  available  loans  motivated  them  to  take  mortgages  for 
property purchases. In 2010, household debt in Slovakia stood at just under 25% of GDP and was 
amongst the lowest in the EU. Since then, household debt has increased gradually, reaching close 
to 48% in 2022. Following these years of increases, Slovakia stands out among EU  countries for 
the rate of increase of household debt, and among its regional peers for its relatively high level of 
household  debt.  This  debt  is  concentrated  primarily  among  households  with  mortgages,  who 
comprise  a  quarter  of  Slovak  households.  Section  3  of this  IDR  analyses  household debt in more 
detail. 

After the pandemic and up to early 2022 house price growth accelerated, before starting 
to  decline.  After  the  outbreak  of  the  pandemic,  property  prices  accelerated  due  to  attractive 
financing conditions accompanied by the wish to make working in the home office more convenient 
and  supportive  government  measures,  which  protected  the  purchasing  power  of  households  and 
further  boosted  the  demand  for  housing  and  mortgage  credit  despite  the  macroprudential 
measures  adopted  since  2018  (see  Section  3  on  household  debt),  notably  increases  in  the 
countercyclical capital buffer and tighter borrower-based measures (loan-to-value, debt service-to 
income  and  debt-to-income  limits,  as  well  as  restrictions  on  loan  maturities).  Growth  in  housing 
prices peaked in the first half of 2022, when the expectation of a rise in interest rates motivated 
households to lock in attractive loan conditions, either for housing or for investment as protection 
against  an  expectation  of  further  rising  inflation  and  nominal  interest  rates.  The  volume  of 
approved  loans  reached  historical  highs,  mainly  due  to  the  refinancing  of  existing  loans,  which 
allowed  households  to  prolong  their  portfolio  fixation  at  still  relatively  low  interest  rates. 
Households preferred to take loans with a 5-years fixation period (see Section 3: Thematic chapter 

(13)  Warning of the European Systemic Risk Board of 2 December 2021 on medium-term vulnerabilities in the residential real 

estate sector of Slovakia. 

15 

                                                 
2. 

Assessment of macroeconomic vulnerabilities 

on household debt). However, with rising interest rates and an increase in the cost of living, lending 
(including refixation) slowed down significantly in the second half of 2022. As a consequence, the 
speed of house sales has slowed, and the number of available real estate advertisements started 
to accumulate after a long time. This led to a quarter-on-quarter decline in housing prices by 1.9% 
in the fourth quarter of 2022, even though prices still grew on year-over-year basis. House prices 
fell most significantly in the Bratislava and Žilina regions. 

Housing supply is insufficient and has been lagging behind the strong demand in recent 
years. The average growth in the number of constructed dwellings was 6.2% over the last 5 years 
before the pandemic, which seems to be lagging behind the strong demand for housing given that 
the  average  growth  in  loans  for  housing  reached  11.8%  over  the  same  period.  The  number  of 
building  permits  for  new  buildings  in  Slovakia  has  been  decreasing  each  year  since  2018 (14)    In 
2020, it took an average of 300 days to obtain a building permit in Slovakia, which ranked Slovakia 
last among all OECD  high-income countries in the World Bank’s Doing Business ranking. In 2021, 
the number of newly constructed dwellings decreased by 3.9% 2021, which could be a result of the 
slowdown  in  construction  activity  during  the  pandemic.  The  largest  decrease  was  in  the  capital 
region of Bratislavský (by 16.6%) and the Košický region (by 16.1%), which have a high population 
density and therefore also a high demand for housing.  

In  Slovakia’s  thin  rental  market,  home  rental  remains  relatively  unattractive  in 
comparison with home ownership.  In Slovakia, over 90% of households own their home, with 
most of them having no mortgage (see Section 3: Thematic chapter on household debt). This is the 
result  of  a  large-scale  privatisation  of  state-owned  real  estate  properties  in  the  1990s  at  a 
preferential rate. Only 7.7% of all households lived in rental housing in 2021, which is the second-
lowest share in the EU after Romania (3.9%). An underdeveloped rental market boosts the demand 
for properties and puts a limit on domestic labour mobility. The share of young people aged 18 to 
34  still  living  with  their  parents  was  65.2%  in  2020,  which  is  much  higher  than  the  euro-area 
average  (48.3%),  although  the  share  has  been  falling  in  recent  years.  With  the  tightening  of 
financial conditions in 2022, living in owner-occupied accommodation has become less affordable 
in  all  regions  and  for  all  income  and  age  groups,  according  to  the  National  Bank  of  Slovakia 
(NBS) (15). Housing is least affordable in the Prešov, Košice, and Žilina regions, while Bratislava is 
better off, thanks to both dynamic wage growth and falling house prices in the recent months. 

A significant number of residents own more than one property, while not offering them 
on  the  rental  market,  suggesting  a  high  share  of  unoccupied  properties.  In  2020, 
approximately  22%  of  property  owners  owned  more  than  one  property,  which  indicates  that 
Slovaks  buy  real  estate  not  only  for  housing  but  also  as  a  form  of  safe  investment.  However, 
almost  87%  of  those  who  own  more  than  one  property  did  not  pay  property  rental  tax  for  the 
relevant  fiscal  year.  It  indicates  that  either  these  properties  were  offered  to  owners’  family 
members or friends without any income, or they were illegally rented without meeting tax liability, 
or  they  were  indeed  unoccupied,  which  worsens  the  supply  issue.  The  supply  of  housing  for  rent 
(especially  in  the  capital  city  of  Bratislava)  also  competes  with  the  increased  interest  in  offering 
real estate for short-term rent via online platforms, which cooled down during the pandemic, but is 
still  very popular.  On the acquisition of housing assets, capital gains from transfer of immovable 
properties are taxed as part of a taxpayer’s annual income. Capital gains derived from the sale of 
real estate are exempt from taxation if an individual has held the property as a non-business asset 
for  longer  than  5  years  prior  to  the  sale.  Although  the  property  tax  is  recurrent  over  the  holding 
period of the asset, the tax revenue is low compared to the EU (0.5% of GDP compared to 1.1% in 

(14)  The exception is the year 2021, when the number of building permits increased by 5.7% year-over-year. This increase is 

likely caused by the catch-up from the pandemic years and does not cover the decrease from 2018. In 2022, the number 
of building permits decreased again by 6%. 

(15)  Financial Stability Reprot of the National Bank of Slovakia from November 2022. 

16 

                                                 
the EU). Slovakia uses area-based property taxation, where the tax liability is primarily based on the 
size of the property.  

Graph 2.8: House price evolution 

2. 

Assessment of macroeconomic vulnerabilities 

Source: Eurostat and European Commission services 

Going  forward,  a  number  of  demand-side  and  supply-side  factors  give  rise  to  the 
expectation of moderating house price developments.  First, for the next two years markets 
expect a further tightening of monetary policy and increasing interest rates. In addition, banks are 
tightening  credit  standards,  also  in  response  to  additional  macroprudential  measures  that  have 
been coming into force (see 3: Thematic chapter on household debt). This more difficult access to 
credit dampened the demand for housing and is expected to continue doing so. Second, the current 
economic slowdown with a reduction in household purchasing power and increased economic and 
geo-political uncertainty are weighing on housing demand. Third, envisaged policy measures, such 
as  the  shortening  of  the  time  to  obtain  a  building  permit  or  the  support  of  government  rental 
housing,  should  improve  the  situation  of  housing  supply.  Fourth,  expected  easing  of  supply  chain 
disruptions and labour shortages in the construction sector should improve. Taking  these demand 
and supply factors together, the growth of property prices is expected to be very moderate in the 
coming years if not even coming to a halt in nominal terms. 

Assessment of MIP relevant policies 

Macroprudential  policy  measures  have  been  taken  to  address  concerns  about  the  high 
household  debt.  In  2018,  the  National  Bank  of  Slovakia  (NBS)  introduced  a  new  set  of 
macroprudential measures with the aim of curbing the growing household indebtedness. Although 
the  restriction  of  credit  supply  did  not  translate  into  a  decrease  in  demand  for  properties,  the 
resilience of the financial system improved, which can be observed, for example, in historical lows 
of NPLs. However, despite these measures, in February 2022 the ESRB issued a warning to Slovakia 
with view of the increasing risk of house price overvaluation, high house prices growth, and rising 
household indebtedness suggesting fine-tuning the existing borrower-based measures framework 
to tackle these pockets of vulnerability. In June 2022, the central bank adjusted the limit for total 
indebtedness  for  loans  approaching  the  borrower’s  retirement  age  with  the  aim  to  mitigate  the 
risks  of  excessively  high  debt  burden  upon  retirement.  The  current  macroprudential  measures 

17 

-40-200204060050709111315171921% deviation of current pricea) House price overvaluationModel-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap608010012014016018020013Q213Q414Q214Q415Q215Q416Q216Q417Q217Q418Q218Q419Q219Q420Q220Q421Q221Q422Q222Q4index (2010=100)b) House price and rentsHouse priceOwner-occupied house priceRent            
 
2. 

Assessment of macroeconomic vulnerabilities 

alongside  ongoing  tightening  of  monetary  conditions  in  the  euro  area  are  expected  to  limit 
mortgage growth and further household debt accumulation. 

The  approved  amendment  to  the  Construction  Act  should  shorten  the  length  of 
construction procedures and reduce the administrative burden. The record length of dealing 
with building permits should be addressed by two new laws (the Construction Act and the Act on 
Land-Use Planning), which were approved in 2022. Both laws will enter into force from April 2024 
and  should  reduce  the  administrative  burden  on  construction-related  activities,  simplify  building 
permit  procedures,  introduce  electronic  processes  and  digitalization  of  data  related  to  land-use 
planning  and  construction.  It  is  expected  that  the  issuance  of  a  building  permit  will  be  possible 
within 40 working days. 

The  law  on  state  support  for  rental  housing  is  supposed  to  improve  the  insufficient 
availability of rental housing.  The government law approved in 2022 aims to build a total  of 
9,000 rental apartments for approximately 1.5 billion euro. The rent in these apartments should be 
significantly  cheaper  compared  to  the  mortgage  payment.  State-supported  rental  housing  should 
bring about higher availability of housing for people who do not have sufficient income to obtain a 
mortgage, or it would be disadvantageous for them. However, progress in the construction of new 
apartments has been limited so far. Supporting insufficient housing supply, including by supporting 
the  development  of  the  rental  market,  would  help  to  dampen  the  housing  price  pressures.  The 
social  housing  is  also  addressed  in  Programme  Slovakia,  where  support  should  be  focused  on 
primarily marginalized (mainly Roma) communities. 

There is room to improve the tax mix, which would reduce the gap between supply and 
demand  in  the  housing  market.  Slovakia  applies  an  area-based  property  taxation,  which  is 
common  in  Central  Europe  (e.g.  also  in  Czechia  and  Poland),  but  exceptional  among  other  OECD 
countries. A new system, in which tax obligations would depend on the estimated market value of 
the property could improve the fairness, bring revenues to public finances, and dampen the strong 
demand for housing properties. The identification of the reasons for non-payment of rental tax and 
the penalization of those who evaded the tax obligation should also contribute to the stabilization 
of prices in the housing market. 

Slovakia  recognised  the  urgent  need  to  diversify  away  from  Russian  energy  imports, 
lower  energy  intensity  and  make  progress  in  greening  electricity  production.  Ongoing 
discussions  on  REPowerEU  and  RRP-financed  projects  are  expected  to  help  accelerate  the  energy 
transition. With the existing high demand for renewables, plans are being pursued by the Ministry 
of Economy to reduce the administrative barriers for renewables, improve the regulative framework 
and expand grid capacity. These investment are however expected to improve the energy security  
in the medium term, not immediately. There are also ongoing campaigns on energy efficiency of 
buildings.  This  should  lower  the  dependence  on  imports  of  energy  and  help  to  avoid  any  further 
current  account  balance  shock.  The  temporary  governmental  intervention  in  the  energy  market 
should start being phased out in 2024. This should lead both to a lower government lending, which 
was  necessary  to  sustain  this  subsidy,  and  higher  energy  price  which  should  moderate 
consumption.  

Improving  non-price  competitiveness  and promoting productivity  growth  is  essential to 
counter  the  losses  in  cost  competitiveness.  The  Slovak  government  has  already  defined  a 
national  strategy  for  research  and  innovation  which  aims  to  simplify  burdensome  regulation  and 
improve skilled labour by attracting and retaining educated young people. Given their high share in 
the  total  business,  low-productive  micro  firms  weigh  down  the  aggregate  productivity  of  the 
economy, pointing to the need of a policy focus on scaling up the innovation potential of smaller 
businesses.  The  productivity  of  larger  small  and  medium-sized  businesses,  albeit  higher,  still 

18 

2. 

Assessment of macroeconomic vulnerabilities 

remains  comparatively  low  among  OECD  countries (16).  Important  policy  levers  include  effective 
education and training and research and development policies.  

Slovakia  could  further  promote  the  competitive  advantages  and  technological 
capabilities of the automotive industry by strengthening local conditions for investment. 
Slovakia  already  attracts  international  companies  which  plan  to  invest  in  the  electric  vehicle 
production in Slovakia. However, they are facing delays in construction due to planning procedures, 
pointing at further scope to reduce administrative burden. Policy should also tackle other structural 
problems  such  as  weaknesses  in  the  capacity  of  public  administration  to  invest  and  implement 
reforms, and problems linked to late payments and access to finance.. Slovakia could also consider 
promoting tests in specific locations to allow companies to test the implementation of autonomous 
vehicles  by  introducing  the  necessary  legislation  on  the  circulation  of  autonomous  vehicles  and 
introduce legislation on alternative fuel vehicles. 

Conclusion  

In  Slovakia,  vulnerabilities  relating  to  competitiveness,  housing,  household  debt  and 
external  balance  have  been  increasing.  The  Slovak  economy  was  strongly  hit  by  the  energy 
price  shock.  While  still  facing  elevated  price  pressures  and  related  secondary  effects,  Slovakia’s 
price competitiveness is projected to partially recover going forward amid decreasing energy prices. 
A concern is whether growth of inflation and ULC will revert to historical averages or remain more 
persistent.  The  trade  balance  in  volumes  remain  mostly  unchanged  in  2022  but  significantly 
deteriorated in value terms due to increased energy import prices and partially because of supply-
chain bottlenecks leading to lower growth in exports. The deficit in trade of goods is expected to 
start closing gradually. House prices are likely to undergo a period of moderation, given the interest 
rate rises and the economic slowdown underway. Yet, the possible moderation of mortgage growth 
through  the  channel  of  rising  interest  rates  ultimately  depends  on  the  European  Central  Bank 
monetary  policy  for  the  eurozone.  Although  a  decrease  in  housing  prices  is  expected  also  in  the 
near future, the risk of a 2007-style boom-bust cycle seems low. Credit to households is likely to 
slow down, additional macroprudential measures have been taken, and the banking sector is well 
capitalized,  highly  profitable  and  benefiting  from  the  low  NPL.  Going  forward,  Slovak  inflation  is 
expected to be still one of the highest in the EU in both 2023 and 2024 with serious implications 
for Slovakia’s competitiveness, possibly hampering a healthier recovery of the trade balance. While 
the  current  account  deficit  is  forecast  to  reduce,  it  will  remain  in  the  short  term  at  a  significant 
deficit. Any further deterioration, or any incomplete correction, of the trade balances would increase 
the current account deficit. 

Continued efforts are needed to provide a policy environment conducive of keeping the 
identified vulnerabilities in check. Macroprudential policy measures have been taken to address 
concerns about the high household debt. Continued efforts to improving non-price competitiveness 
and  promoting  productivity  growth  can  help  countering  the  losses  in  cost  competitiveness,  and 
excess demand should be kept in check to support the correction of the current account. This can be 
achieved by ensuring adequate fiscal consolidation and taking measures to keep household debt in 
check, which could be via the tax system. To address vulnerabilities related to the housing market, 
the  approved  amendment  to  the  Construction  Act  should  shorten  the  length  of  construction 
procedures  and  reduce  the  administrative  burden.  The  law  on  state  support  for  rental  housing  is 
supposed  to  improve  the  insufficient  availability  of  rental  housing  but  further  supporting  the 
development  of  the  rental  market  would  also  contribute.  Moreover, there is  room  to improve  the 
tax mix, to reduce the gap between supply and demand in the housing market. 

(16)  2022 ARTICLE IV CONSULTATION - SLOVAK REPUBLIC, IMF Country Report No. 22/202 

19 

                                                 
Based on the findings in this in-depth review, the Communication “European Semester – 
2023 Spring Package” (17) sets out the Commission’s assessment as to the existence of 
imbalances or excessive imbalances in Slovakia, in line with Regulation 1176/2011. 

2. 

Assessment of macroeconomic vulnerabilities 

(17)  European Commission (2023), European Semester Spring Package 2022, COM(2023)XXX final. 

20 

 
                                                 
2. 

Assessment of macroeconomic vulnerabilities 

Box 1: Inflation exposures and cross-border pass-through 

This  box  sheds  light  on  the  sources  of  inflation  in  Slovakia  and  its  spill-overs  with  EU 
partners.  The  period  since  2021  has  been  characterized  by  pandemic  aftershocks  and  global 
supply  chain  disruptions  compounding  global  inflationary  pressures  and  a  surge  in  commodity 
prices  triggered  by  Russia’s  war  of  aggression  against  Ukraine.  As  a  result,  inflation  in  Slovakia 
surged to unprecedented levels. In response, wages and profits also picked up across the EU, which 
further  added  to  price  pressures  in  Slovakia.  With  input-output  data,  domestic  inflation  can  be 
decomposed  into  the  contributions  from  key  cost  factors.  Taking  into  account  some  data 
limitations, the framework can be  used to attribute consumer and investment price changes to i) 
extra-EU import price changes, which include both directly imported inflation and inflation passed 
through from EU partners import costs ii) domestic unit labour cost changes iii) domestic unit profit 
changes, including indirect taxation changes and iv) rest-of-EU value added price changes. (18) 

Data suggests that much of inflation in Slovakia in 2022 reflected surging import prices, 
whereas the importance of domestic drivers is expected to increase in 2023. In 2022, as 
shown in Graph 2.9, energy  prices were a key driver of consumer inflation. The contribution from 
inflation passed through EU partners and from domestic value-added inflation, namely unit profits, 
were  substantial.  Energy  inflation  contributed  much  less  to  investment  inflation.  The  impact  of 
energy  inflation  is  set  to  subside  and  to  eventually  decrease  inflation  this  year  and  next.  Value 
added  inflation  in  EU  partners  also  increased  investment  inflation  in  Slovakia  somewhat.  The 
importance  of  domestic  value  added  inflation  is  expected  to  increase.  Both  unit  profits  and  unit 
labour  cost  are  expected  to  keep  inflation  elevated  in  2023  and  2024. Non-energy  imports  from 
outside  the  EU  are  also  expected  to  continue  fueling  inflation  in  Slovakia.  In  addition,  spill-overs 
from value added inflation in EU partners are set to add to investment inflation. 

Graph 2.9: Components of gross fixed capital formation deflator growth and consumer price 
inflation 

Source: European Commission services 

(18) The graphs below are based on national accounts data and the Commission’s Spring 2023 forecast, combined with 

Eurostat input-output data. HICP is taken as the measure of the price of private consumption, including non-residents. 
Changes in import prices and value-added deflators are assumed to affect demand prices with a delay of 5 months. For a 
similar analysis using an input-output-based methodology, see “Inflation Differentials in Europe and Implications for 
Competitiveness: Thematic Note to Support In-Depth Reviews” European Commission 2023, Institutional paper 198. 

21 

-4-2024681012161718192021222324% change (year-on-year)SK: contribution to domestic GFCF deflator growth-10-5051015161718192021222324% change (year-on-year)SK: contribution to domestic CPI deflator growthDomestic ULCUnit profits (&taxes)RoEU value added deflatorEnergy imports from Extra-EUOther imports from Extra-EURoEU import cost passthr.ResidualDeflator growth YoY 
  
 
 
                                                 
Table 2.1: Selected economic and financial indicators (Part 1), Slovakia 

2. 

Assessment of macroeconomic vulnerabilities 

(e) estimate based on ECB quarterly data 
(1) Potential output is the highest level of production that an economy can reach without generating inflationary 
pressures. The methodology to compute the potential output is based on K. Havik, K. Mc Morrow, F. Orlandi, C. Planas, R. 
Raciborski, W. Roeger, A. Rossi, A. Thum-Thysen, V. Vandermeulen, The Production Function Methodology for Calculating 
Potential Growth Rates & Output Gaps, COM, European Economy, Economic Papers 535, November 2014. 
(2) Deviation of actual output from potential output as % of potential GDP. 
(3) Current accounts in line with fundamentals ("current account norms") are derived from reduced-form regressions 
capturing the main determinants of the saving-investment balance, including fundamental determinants, policy factors 
and global financial conditions. See L. Coutinho et al. (2018), "Methodologies for the assessment of current account 
benchmarks", European Economy, Discussion Paper 86/2018, for details.  
(4) This benchmark is defined as the average current account required to halve the gap between the NIIP and the 
indicative MIP benchmark of -35% of GDP over the next ten years, or to stabilise the NIIP at the current level if it is 
already above the indicative MIP benchmark. Calculations make use of Commission’s T+10 projections. 
(5) NENDI is a subset of the NIIP that abstracts from its pure equity-related components, i.e. foreign direct investment 
(FDI) equity and equity shares, and from intracompany cross-border FDI debt, and represents the NIIP excluding 
instruments that cannot be subject to default. 
(6) Fundamentals-based benchmarks are derived from regressions capturing the main determinants of credit growth and 
taking into account a given initial stock of debt. Prudential thresholds represent the debt threshold beyond which the 
probability of a banking crisis is relatively high, minimising the probability of missed crisis and that of false alerts. 
Methodology to compute the fundamentals-based and the prudential benchmarks based on Bricongne, J. C., Coutinho, L., 
Turrini, A., Zeugner, S. (2019), “Is Private Debt Excessive?”, Open Economies Review, 1- 42. 
Source: Eurostat and ECB as of 2023-04-28, where available; European Commission for forecast figures (Spring forecast 
2023) 

22 

all variables y-o-y % change, unless otherwise stated2003-072008-122013-18201920202021202220232024Real GDP 7.32.12.92.5-3.34.91.71.72.1Potential growth  (1)5.53.72.22.51.41.71.92.52.1Contribution to GDP growth:Domestic demand 5.20.62.63.8-3.13.03.42.81.5Inventories 0.3-0.60.40.0-1.92.6-0.1-0.10.0Net exports 1.82.0-0.1-1.31.6-0.8-1.6-0.90.6Contribution to potential GDP growth (1):Total Labour (hours) 0.30.70.0-0.3-0.7-0.30.20.40.0Capital accumulation 0.91.01.01.20.50.50.61.01.0Total factor productivity 4.22.11.21.61.61.51.11.01.1Output gap (2)1.0-0.1-0.72.0-2.80.30.0-0.7-0.7Unemployment rate15.312.610.55.76.76.86.15.85.4Harmonised index of consumer prices (HICP)4.92.70.72.82.02.812.110.95.7GDP deflator 3.51.00.82.52.42.47.59.85.7External positionCurrent account balance (% of GDP), balance of payments-7.2-3.6-1.0-3.30.6-2.5-8.2-7.0-5.6Trade balance (% of GDP), balance of payments-2.8-0.22.30.12.10.0-5.7..Primary income balance (% of GDP)-3.9-2.3-1.7-2.3-0.8-1.5-1.7..Secondary income balance (% of GDP)-0.5-1.2-1.6-1.1-0.7-1.0-0.8..Current account explained by fundamentals (CA norm, % of GDP) (3)-0.7-0.30.00.00.00.0-0.1-0.1-0.2Required current account to stabilise NIIP above -35% of GDP over 20Y (% of GDP) (4)-1.8-1.4-1.9-1.7-1.8-1.6-1.3-0.8-0.5Capital account balance (% of GDP)0.21.31.40.70.81.31.2..Net international investment position (% of GDP)-47.2-61.4-65.5-65.7-64.7-59.9-61.0..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (5)0.3-9.9-14.0-14.1-14.8-14.4-18.2..Net FDI flows (% of GDP)-5.7-2.0-0.7-2.32.60.3-2.1..CompetitivenessUnit labour costs (ULC, whole economy)2.22.02.65.35.41.36.28.45.3Nominal compensation per employee 8.33.83.66.83.96.96.09.77.4Labour productivity (real, hours worked)5.51.82.22.26.04.7-2.50.81.5Real effective exchange rate (ULC)5.72.20.82.81.21.02.21.61.3Real effective exchange rate (HICP)8.12.60.40.82.10.02.1..Export performance vs. advanced countries (% change over 5 years)83.916.44.4-0.48.01.5...Private sector debtPrivate sector debt, consolidated (% of GDP)47.366.583.791.094.792.291.8..Household debt, consolidated (% of GDP)11.924.636.343.446.547.047.1..Household  debt, fundamental benchmark (% of GDP) (6)12.919.925.627.229.630.029.1..Household  debt, prudential threshold (% of GDP) (6)54.244.656.055.450.548.147.8..Non-financial corporate debt, consolidated (% of GDP)35.442.047.447.648.245.244.6..Corporate debt, fundamental benchmark (% of GDP) (6)43.042.545.444.447.347.445.5..Corporate debt, prudential threshold (% of GDP) (6)69.857.676.370.068.267.167.8..Private credit flow, consolidated (% of GDP) 6.96.05.94.52.84.48.1..Corporations, net lending (+) or net borrowing (-) (% of GDP)-2.53.62.1-3.03.20.8-4.21.80.4Households, net lending (+) or net borrowing (-) (% of GDP)-0.10.71.01.92.92.2-1.7-2.4-0.8Net savings rate of households (% of net disposable income)0.71.72.43.95.54.2-2.6..forecast 
     
 
 
 
 
Table 2.2: Selected economic and financial indicators (Part 2), Slovakia 

2. 

Assessment of macroeconomic vulnerabilities 

(7) Unweighted average of price-to-income, price-to-rent and model valuation gaps. The model valuation gap is 
estimated in a cointegration framework using a system of five fundamental variables; total population, real housing 
stock, real disposable income per capita, real long-term interest rate and price deflator of final consumption expenditure, 
based on Philiponnet, N., Turrini, A. (2017), "Assessing House Price Developments in the EU," European Economy - 
Discussion Papers 2015 - 048, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission. 
Price-to-income and price-to-rent gaps are measured as the deviation to the long term average (from 1995 to the latest 
available year). 
(8) Price-to-income overvaluation gap measured as the deviation to the long term average (from 1995 to the latest 
available year). 
(9) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
Source: Eurostat and ECB as of 2023-04-28, where available; European Commission for forecast figures (Spring forecast 
2023) 

23 

all variables y-o-y % change, unless otherwise stated2003-072008-122013-18201920202021202220232024Housing marketHouse price index, nominal.-1.14.69.19.66.413.7..House price index, deflated.-3.63.86.27.23.01.3..Overvaluation gap (%) (7)-1.71.9-6.83.411.113.010.8..Price-to-income overvaluation gap  (%) (8)3.63.0-7.0-2.24.35.18.9..Residential investment (% of GDP)3.12.93.03.33.84.04.3..Government debtGeneral government balance (% of GDP)-2.8-5.4-2.2-1.2-5.4-5.4-2.0-6.1-4.8General government gross debt (% of GDP)36.340.152.248.058.961.057.858.358.7Banking sectorReturn on equity (%)6.74.85.85.04.35.8...Common Equity Tier 1 ratio28.319.017.618.819.820.3...Gross non-performing debt (% of total debt instruments and total loans and advances) (9)1.53.43.62.52.11.7...Gross non-performing loans (% of gross loans) (9)..4.22.92.52.01.8..Cost of borrowing for corporations (%).3.62.32.31.91.83.9..Cost of borrowing for households for house purchase (%).5.22.41.11.00.93.1..forecast 
     
 
 
 
3.  THEMATIC CHAPTER: HOUSEHOLD DEBT 

Driven by household debt, the private debt-to-GDP ratio in Slovakia has been rising over 
the years until it reached an all-time high in 2021, before it slightly decreased in 2022. 
Although Slovakia's private debt-to-GDP ratio was lower than in most EU countries in 2022, it was 
one of the highest ratios among the Central and Eastern European countries (see Graph  3.1a). In 
2020,  the  private  debt-to-GDP  ratio  stood  at  95%  of  GDP,  up  from  65%  in  2010.  In  2022,  it 
slightly decreased to 93% of GDP (Table3.1). The strong growth of private debt has been primarily 
driven by household debt, namely mortgage debt. The household debt-to-GDP ratio has increased 
by over 20 pps over the last decade to 48%, which is still below the prudential threshold (50%), but 
well  above  the  fundamental  benchmark  (29%).  Approximately  25%  of  households  have  a 
mortgage, which is an increase of 5 pp since 2017, and most of these are higher-income, younger 
households. (19)  The  ongoing  tightening  of  market  credit  conditions  is  expected  to  slow  down  the 
demand  for  household  loans.  The  banking  system  in  Slovakia  is  considered  stable  and 
macroprudential regulation sufficient to prevent possible risks. (20)   

Graph 3.1: Household debt and loans 

Source: European Commission services, NBS 

The pandemic did not weaken household demand for loans due to government measures, 
resulting in a strong increase in household debt up to 2021. After a slump during the global 
financial  crisis,  household  credit  flows  again  kept  rising  thereafter,  peaking  at  4.4%  of  GDP  in 
2016.  In  parallel,  the  household  debt-to-GDP  ratio  grew  sharply  over  the  past  decade  until  it 
reached its peak of 48% in 2021. During the pandemic the government responded with measures 
amounting to 1.9% of GDP in 2020 and 3.1% of GDP in 2021. These measures aimed to support 
employment and help the business sector. Likewise, the unemployment rate increased only slightly 

(19)  According to the NBS, average net monthly income of all debtors is 2.559 EUR, while their median net monthly income is 

1.900 EUR. The average age is 37. 

(20)  In turn, the non-financial corporation debt-to-GDP ratio has been slowly decreasing over the last 7 years, and it is now at 

the fundamental benchmark (45%) and well below the prudential threshold (76%). For these reasons, the remainder of this 
chapter will focus on household debt. 

24 

-10-50510152016201720182019202020212022b) Loans to households (annual % change)Bank loans for housingBank consumer loans0255075100125150175200NLSELUPTDESKEECZLTHULV% of GDP (if not differently specified)a) Household debtFundamental thresholdPrudential thresholdhousehold debt as a share of disposable income 2022 
 
   
                                                 
 
3. 

Thematic chapter: household debt 

to  6.9%  in  2021,  and  in  both  pandemic  years  it  did  not  exceed  the  average  of  the  last  4  years 
before  the  pandemic.  Consequently,  household  income  and  demand  for  loans  remained  strong, 
while  consumer  credits  declined.  Following  the  slowdown  in  2020,  overall  household  credit  flows 
reached again 3.7% of GDP in 2021. At the same time, nominal GDP fell in 2020 and then grew by 
only 5.5% in 2021, which also contributed to the sharp rise in debt indicators in 2020 and 2021. 

In  2022,  while  credit  flows  to  households  picked  up,  the  household  debt-to-GDP  ratio 
declined slightly due to strong nominal GDP growth. On the one hand, household credit flows 
accelerated  to  4.2%  of  GDP,  which  is  the  second  highest  value  in  the  EU  and  more  than  twice 
exceeding  the  benchmark  for  credit  flows  of  1.9%  of  GDP  (Table3.1).  On  the  other  hand,  strong 
nominal GDP, driven by both real growth and inflation, helped to avoid an increase in the debt-to-
GDP ratio, which remained unchanged at the level 48% in 2022. 

Household  demand  for  mortgages  has  grown  dynamically,  which  was  also  driving 
developments  in  the  housing  market  (see  Chapter  2  on  housing  prices).  Growth  in 
household bank loans for house purchases slowed significantly after the global financial crisis but 
remained  well  above  10%  in  the  years  before  the  pandemic.  It  slowed  to  9.2%  in  2020  but 
increased again by 11.2% in 2021 and also in 2022 (graph 3.1b). Consequently, the share of loans 
for house purchases in household bank debt reaches almost 90%. The strong growth in mortgage 
loans before the pandemic was driven by rising wages and low unemployment, fuelling demand for 
real estate investments. In addition, the easing of monetary policy translated into lower mortgage 
interest  rates  in  Slovakia  (1.5%  on  average  in  2018-2019),  making  mortgages  more  affordable 
(graph  3.2a).  The remainder of household debt is mostly made up of somewhat riskier consumer 
loans (21) (10% in 2022), which have also grown dynamically over the last decade, but their growth 
dropped in 2020 and only mildly recovered in the following years (graph 3.1-b). 

Graph 3.2: Mortgage rate and new loans 

Source: European Commission services, NBS 

In  response  to  the  rapid  growth  of  household  debt,  since  2018  the  National  Bank  of 
Slovakia  (NBS)  has  introduced  a  set  of  borrower-based  measures  aimed  at  a  prudent 
provision of mortgages and consumer loans. The NBS has introduced a limit on the loan-to-
value (LTV) ratio so that no loan may exceed an LTV of 90%, while a maximum of 20% of all loans 

(21)  In Slovakia, only banking institutions are authorized to provide loans, which eliminates the risks associated with shady non-
banking institutions. The share of non-bank consumer loans in total household debt portfolio is approximately 1.5%. 

25 

SKEA200.01.02.03.04.05.06.01920212223%Data up to 2023-02a) Av. Interest rate for new hh. Mortgage business01232-20195-20198-201911-20192-20205-20208-202011-20202-20215-20218-202111-20212-20225-20228-202211-2022EUR bnb)New loans and loans refinancingRefinancing/refixation - fixation over 5 yearsRefinancing/refixation - fixation of no more than 5 yearsNew loans - fixation over 5 yearsNew loans - fixation of no more than 5 years           
 
                                                 
3. 

Thematic chapter: household debt 

granted  may  exceed  an  LTV  of  80%.  Furthermore,  a  limit  on  the  debt-to-income  (DTI)  ratio  was 
introduced, whereby only a maximum of 5% of the total loans provided may exceed the limit of 8 
times  the  net  annual  income  of  the  applicant.  Another  5%  of  the  loans  provided  must  be  in  the 
range  of  8  to  9  times  the  net  annual  income  of  the  applicant  (which  applies  only  to  loans  "for 
young people"). From 2020, the NBS also adjusted the limit on the debt service-to-income (DSTI) 
ratio, determining that no repayments can exceed 60% of the household income, which is deducted 
by the subsistence minimum. Only  5% of loans can have repayments between 60% and 70% of 
household  income,  while  another  5%  of  consumer  loans  up  to  5  years  can  have  repayments 
between  60%  and  70%  of  household  income.  Repayments  on  consumer  loans  for  financing  the 
renovation of a family house within the Recovery and Resilience Plan can be reduced by 50 EUR.  

The  ESRB  warning  from  December  2021  assessed  these  macroprudential  policies  as 
appropriate but only partially sufficient. (22) The report points out that the NBS might consider 
tackling the vulnerabilities arising from the topping-up of existing mortgages and the length loan 
maturities being extended beyond retirement age. The NBS addressed the issue of loan maturities 
exceeding  retirement  age  by  adjusting  the  DTI  limit  for  clients  older  than  40  years  taking  loans 
exceeding beyond their retirement age since January 2023. To further strengthen the resilience of 
Slovak banks, the NBS announced an increase in the countercyclical capital buffer rate applicable to 
the risk exposure of local banks from 1% to 1.5% as of 1 August 2023. 

Overall,  the  Slovak  banking  sector  remains  resilient  and  well  capitalised.  Slovak  banks 
remain profitable and well capitalised, with a common equity tier 1 ratio of 16.5% in Q3-2022 (EU 
average: 15.3%).  There is a significant amount of liquidity in the banking system, as the liquidity 
coverage ratio was at 152.3% in Q3-2022. The non-performing loans ratio decreased to 1.8% in 
Q3-2022,  the  lowest  level  since  2016  (EU  average:  1.8%).  The  banking  sector  is  highly 
concentrated,  with  the  five  largest  banks  in  the  system  holding  79.3%  of  total  banking-sector 
assets. Foreign-owned banks in Slovakia account for around 87% of total banking-sector assets). 
The NBS does not plan to further change the countercyclical capital buffer for banks given that it 
expects increasing interest rates to cool down the demand for credit.  

Monetary policy and lending conditions began to tighten in 2022 in response to the rise 
in  inflation,  resulting  in  a  decline  in  credit  with  some  delay.  In  the  first  half  of  2022, 
inflation began to rise sharply in the euro area (see Section 2). The ECB responded by tightening 
monetary  policy,  including  by  raising  interest  rates.  Similarly,  average  interest  rates  on  new 
mortgages in Slovakia increased from 1% in January 2022 to approximately 3% at the end of the 
year (graph3.2).  As a result of rising interest rates in 2022, the credit market accelerated before 
slowing down. Initially, households sped up their decisions to apply for a loan when interest rates 
started  to  increase,  while  demand  for  loan  interest  rate  re-fixation  increased.  In  the  first  half  of 
2022, the demand for new loans more than doubled compared to the previous year. The share of 
loans  requested  for  refinancing  doubled  to  almost  57%  of  all  new  loans,  while  pure  new  loans 
represented only approximately 43%. In particular, the demand for refinancing loans with a 5-year 
fixation period increased. As a result, the volume of approved loans reached all-time highs. In turn, 
in the second half of 2022 the demand for loans eased on the back of further increasing interest 
rates. The average monthly growth in total bank loans decreased from 1.0% in the first half of the 
year  to  0.6%.  According  to  the  NBS,  property  sales  also  slowed  and  the  number  of  available 
advertised properties started to increase after a long time. The rising cost of living contributed in 
September  to  the  weakest  annual  increase  in  loans  to  households  since  2013,  with  demand  for 
new loans falling the most (see Graph 3.2b). 

(22)  Warning of the European Systemic Risk Board of 2 December 2021 on medium-term vulnerabilities in the residential real 

estate sector of Slovakia. 

26 

                                                 
3. 

Thematic chapter: household debt 

Credit  flows  are  expected  to  slow  down  in  the  coming  years,  mainly  because  of  the 
expected further increase in interest rates. As the expected inflation rate in the euro area in 
the  next  two  years  is  well  above  the  target  of  2%,  markets  expect  further  monetary  tightening. 
Debt  servicing  costs in  Slovakia  are  therefore  set  to  increase  further  over  the  coming  years.  The 
labour  market  is  expected  to  remain  strong,  but inflation  will dampen  the  growth  of  households’ 
disposable income and weigh on their purchasing power. While GDP growth is forecast to gradually 
increase  again  to  2.1% in  2024,  uncertainty  remains  high  given  the  current  global economic  and 
political environment. Against  the background of these developments, the demand for new loans, 
especially mortgages, is expected to decrease further. This is also confirmed by the Bank Lending 
Survey of the NBS (graph3.3). Debt repayment capacity is currently at a good level and, given the 
expected  solid  development  in  the  labour  market,  it  should  not  deteriorate  significantly  even  if 
interest rates rise further, although some loan agreements may need to be adjusted. 

Graph 3.3: Demand for housing loans 

Source: European Commission services ECB BLS 
Note: The graph shows the assessment of the changes in the demand for mortgage loans based on the survey among 
individual banks  

27 

-120-100-80-60-40-20020406012-182-194-196-198-1910-1912-192-204-206-208-2010-2012-202-214-216-218-2110-2112-212-224-226-228-2210-2212-22Q-o-Q in %Demand for housing loans (quarter-over-quarter)   
 
Table 3.1: Private debt indicators, Slovakia 

3. 

Thematic chapter: household debt 

Source: European Commission services 

28 

2003-072008-122013-19202020212022f|22Q122Q222Q322Q4SourceStocksPrivate debt level (% of GDP)(1)(a,d)476785959292|99989997Private debt level (% of potential GDP)(1)(a,b,d)|Prudential threshold (% of GDP)(c)109102131119115116|Fundamental benchmark (% of GDP)(c)|FlowsPrivate credit flows (transactions, % of GDP)(4)(a)6.96.05.72.84.48.1|3.57.214.13.6Private credit flows (transactions, % of potential GDP)(4)(a,b)|Benchmark for flows (% of GDP)(c)|Households (HH)StocksHH debt level (% of GDP)(a,d)132537474747|47484747HH debt level (% of potential GDP)(a,b,d)|Prudential threshold (% of GDP)(c)514456514848|Fundamental benchmark (% of GDP)(c)|Debt (% of gross disposable income)(a,b,d)234163737574|75757574Interest paid (% of gross disposable income)(a,b)1.41.40.50.40.40.5|Debt (% of gross financial assets)(a,d)22.335.040.944.644.449.6|46.147.949.249.6Share of variable rate loans for house purchase (%)(d)43.847.2|Domestic  loans in forex (% of dom. loans)(d)0.20.10.00.00.00.0|FlowsHH credit flows (transactions, % of GDP)(4)(a)4.83.63.52.73.64.2|3.75.94.13.3HH credit flows (transactions, % of potential GDP)(4)(a,b)|Benchmark for flows (% of GDP)(c)1.81.32.22.51.81.8|Savings rate (% gross disposable income)(b)6.77.58.311.410.95.2|Investment rate (% gross disposable income)(b)7.37.16.67.17.67.9|p.m. Bank HH NPLs (% of HH loans)(2)(d)3.6|Non-financial corporations (NFC)StocksNFC debt (% of GDP)(1)(a,d)344247484545|52515250NFC debt (% of potential GDP)(1)(a,b,d)|Prudential threshold (% of GDP)(c)585875686768|Fundamental benchmark (% of GDP)(c)|Debt (% of value added)(a,b,d)668088928788|1009910199Interest paid (% of gross operating surplus)(a,b)5.65.02.72.42.53.2|Debt (% of gross financial assets)(a,d)8092101908384|Domestic  loans in forex (% dom. Loans)(d)2.21.60.80.40.40.2|0.40.20.10.2FlowsNFC credit flows (transactions, % of GDP)(4)(a)2.02.42.20.10.74.0|-0.21.310.00.3NFC credit flows (transactions, % of potential GDP)(4)(a,b)|Benchmark for flows (% of GDP)(c)|Investment (% of value added)(b)38.830.527.822.427.330.1|Savings (% of value added)(b)33.235.730.227.229.422.6|p.m. Banks NFC NPLs (% of NFC loans)(3)(d)5.83.42.8|Total private sector (Households and Non-financial corporations) 
        
 
 
 
 
 
 
 
 
 
Table 3.2: Selected housing market indicators, Slovakia 

3. 

Thematic chapter: household debt 

(') Forecast. The forecast of house prices is computed on the basis a housing valuation model shared with Member States 
in the context of the EPC LIME working group. The forecasts represent real house price percentage changes expected 
based on economic fundamentals (population, disposable income forecast, housing stock, long-term interest rate, and the 
price deflator of private final consumption expenditure), as well as the error correction term summarising the adjustment 
of prices towards their long-run relation with fundamentals. The source for the forecast of other variables is Ameco. 
(1) Price to income in level is the number of years of income necessary to buy an assumed 100m2 dwelling. See 
Bricongne, J-C, A Turrini, and P Pontuch, 2019, “Assessing House Prices: Insights from HouseLev, a Dataset of Price Level 
Estimates”, Discussion Paper 101, European Commission, available in "https://ec.europa.eu/info/publications/assessing-
house-prices-insights-houselev-dataset-price-level-estimates_en".  
(2) Price to income and price to rent gaps are measured in deviation to the long term average (from 1995 to the latest 
available year).  
(3) The model valuation gap is estimated in a cointegration framework with nominal house prices as the dependent 
variable and five fundamental explanatory variables:  total population, real housing stock, real disposable income per 
capita, real long-term interest rate and price deflator of final consumption expenditure. See Philiponnet and Turrini, 
Assessing House Price Developments in the EU (2017) available in "https://ec.europa.eu/info/publications/economy-
finance/assessing-house-price-developments-eu_en" and revision notes presented to LIME in October 2019 and June 
2020.  
(4) The average house price gap is the simple average of the price-to-inome, price-to-rent and model valuation gaps. 

Source: Eurostat, OECD, ECB, BIS, Ameco, national sources, European Commission calculations. 

29 

2003-072008-122013-18201920202021202222Q122Q222Q322Q4House price developmentsUnitSourceReal house price, yoy growth%(a)18.5-3.23.86.27.23.01.32.93.41.7-2.4Nominal house price, yoy growth%(a)22.8-0.64.69.19.66.413.714.216.614.69.7Price to income in level (1)years(b)8.78.77.98.38.88.99.29.59.39.38.8Rent price developmentsSourceNominal rent price index2015=100(a)80.597.2100.3101.4103.0103.9108.2110.3110.9111.9112.6Nominal rent price, yoy growth%(a)13.32.20.20.61.50.94.19.49.911.011.7Valuation gapsPrice to income gap (2)%(c)3.63.0-7.0-2.24.35.18.95.99.211.39.7Price to rent gap (2)%(c)-17.5-7.0-6.017.326.633.545.841.045.648.448.3Model valuation gap (3)%(c)8.89.7-7.4-4.82.30.2-22.2-17.1-20.6-22.8-27.6Average house price gap (4)%(c)-1.71.9-6.83.411.113.010.810.011.412.310.1Housing creditBank mortgages (% GDP)%(d)11.715.826.232.836.137.537.9Bank mortgages, yoy growth%(d)30.015.312.89.79.011.510.4Housing supply0.00.00.00.0Residential construction - dwellings  (% GDP)%(e)3.12.93.03.33.84.04.3Residential construction - dwellings, yoy growth%(e)64.02.94.82.99.97.64.1Non-residential construction (% GDP)%(e)8.47.26.15.45.65.35.6Value added in the construction sector, yoy growth%(e)14.64.50.2-16.7-7.1-3.43.8Building permits index2015=100(a)85.592.798.6115.5108.0129.9108.892.8135.5104.7102.3Building permits, yoy growth%(a)17.3-2.110.5-0.9-6.520.3-16.20.71.0-20.7-36.5Number of transactions, yoy change%(f)Other housing market indicatorsShare of owner-occupiers, with mortgage or loan%(a)4.17.813.120.623.325.8 
        
 
 
 
 
 
 
 
 
 
 
 
 
Table 3.3: Selected household debt indicators, Slovakia 

3. 

Thematic chapter: household debt 

f) European Commission forecast, . (1) Gross non-performing bank loans and advances to Households and non profit 
institutions serving households (% of total gross bank loans and advances to Households and non profit institutions 
serving households). (2)  Quarterly data is annualized. 
Source: (a) Eurostat, (b) Ameco, (c) European Commission calculations, (d) ECB. 

30 

2003-072008-122013-20202120222023f|21Q121Q221Q321Q4SourceStocksDebt, consolidated (% of GDP)(a,d)132539474746|47464747Debt, consolidated (% of potential GDP)(a,b,d)|Prudential threshold (% of GDP)(c)544455484848|Fundamental benchmark (% of GDP)(c)132026302929|Debt (% of gross disposable income)(a,b,d)234164757473|73737475Interest paid (% of gross disposable income) (2)(a,b)1.41.40.50.40.5|Debt (% of gross financial assets)(a,d)22.335.041.444.449.6|43.943.744.544.4Share of variable rate loans for house purchase (%)(d)43.847.2|Domestic  loans in forex (% of adjusted dom. loans)(d)0.20.10.00.00.0|Adjusted domestic  loans (% of gross disposable income)(d)31.037.760.572.572.1|Loans for house purchase (% of gross disposable income)(d)20.626.446.859.959.6|FlowsCredit flows (% of gross disposable income) (2)(a)10.56.15.65.86.54.0|3.57.07.16.9Loans for house purchase (% gross disposable income)(a,b)4.93.45.06.05.6|Benchmark for flows (% of GDP)(c)1.81.32.31.81.81.7|Savings rate (% gross disposable income)(b)6.77.58.710.95.25.9|Investment rate (% gross disposable income)(b)7.37.16.77.67.97.3|p.m. Bank HH NPLs (% of HH loans)(1)(d)3.52.2|