Successfully investing in Slovakia

last updated on 7 June 2024 | reading time approx. 4 minutes

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

How do you assess the current economic situation in Slovakia?

Despite the ongoing uncertainty related to the new global challenges, the Slovak economy is expected to grow. The higher growth is likely to be supported by falling inflation and rising real wages, which will lead to higher household consumption and ultimately to growth in overall demand in the country. Domestic production costs have fallen at the beginning of 2024 due to more favourable energy prices Economic growth in Slovakia was 1.1 percent in 2023 and it could reach 2.3 percent in 2024 and 2.6 percent in 2025.The main driver of economic growth will be the uptake of EU funds.

A combination of a more favourable external environment, a decline in commodity input prices and an easing of component shortages should support Slovakia’s export performance. In the labour market, the pool of workers is shrinking, as reflected in slower employment growth. A majority of job vacancies are being filled by foreign workers. Labour demand will again pick back up and, amid an adverse demographic situation, will likely be met by incoming foreign workers.

Geopolitical conflicts are the biggest threats in the forthcoming twelve months. In the long-term period, it will be also the cybersecurity risks and climate changes. Companies need to be prepared for the Artificial intelligence (AI) development that seems to grow in next years.

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

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

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

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

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

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

The general political situation in Slovakia is considered to be stable. According to the Credit Insurance Group Credendo, Slovakia is one of the safest and politically most stable countries in Europe. Slovakia has the lowest risk among EU countries, especially in the following categories: Risk of political unrest, Risk of state intervention in private property, Currency risk and Transfer risk. However, it should be noted that the Credit Insurance Group Credendo report was published shortly after the 2023 general election and before this year's presidential election.

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

What importance does Germany have for the Slovakian economy?

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

The strongest country in the euro zone is also Slovakia’s most important business partner. Slovakia has been running a trade surplus with Germany for several years now. In April 2023, another German company announced a large investment in Slovakia, also with state support, in response to increased interest in heat pump technology and the need for alternative energy sources

In your opinion, how will Slovakia develop?

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