Steady Away The Order Of The Day. Heading into 2012, the report expects fairly modest growth across Slovakia's freight modes. Air freight will lead the way in terms of year-on-year (y-o-y) growth at just over 5%, with low single-digit growth predicted for the other freight modes in the country.
For Europe as a whole, the strong show of support in Germany's parliament in September 2011 for proposed changes to Europe's temporary rescue fund suggests that policymakers are moving closer to preventing the eurozone debt crisis from escalating further. However, the proposed measures remain short of the necessary action required, such as expanding the size of the fund itself and beginning to put in place plans to administer a restructuring of Greek debt. Failure to do so threatens to bring the debt crisis to boiling point within a matter of months.
Despite initial concerns that Germany's shaky coalition government would reject a proposal to revamp the EUR440bn European Financial Stability Facility (EFSF), the German Bundestag (lower house of parliament) overwhelmingly backed hallmark changes to the rescue facility on September 29. Of the 17 eurozone member states, 14 have now approved changes to the EFSF which would enable the fund to purchase sovereign bonds on the primary and secondary market, extend precautionary credit lines and provide capital injections for financial institutions. All eyes will now be focused on the three remaining states that have yet to vote on the proposed changes: Malta, the Netherlands and Slovakia.
Slovakia in particular has long been viewed as the biggest risk to the unanimous approval of changes to the facility; the Freedom and Solidarity (SaS) party in Prime Minister Iveta Radicova's coalition government refuses to back the proposed changes. With the vote pencilled in for October 14 2011 (just after the time of writing), it is likely that the government will have to rely on the backing of the opposition Smer party, which has already signalled its support for the measures.
Looking ahead, unfavourable demographics pose a significant risk to Slovakia's long-term political and macroeconomic profile. Like many other countries in the developed world, Slovakia's productive population (those of working age 15-64) is declining as the total dependency ratio (a ratio of the working to non-working population) is rising. By BMI's forecasts, Slovakia's population will peak in 2019 and then steadily decline, from 5.4mn in 2010 to 4.9mn in 2050. This threatens to put significant pressure on the government's fiscal position, as health and pension liabilities rise in tandem with the dependency ratio, which we forecast to rise from 37.7% in 2010 to 45.0% in 2020 and 69.8% in 2050.
Headline Industry Data
2012 air freight tonnage is forecast to increase 5.04% y-o-y to reach 19,660 tonnes.
2012 rail freight tonnage is forecast to rise 3.01% y-o-y, reaching 42.42mn tonnes.
2012 road freight tonnage throughput is predicted to grow 3.05% y-o-y to reach 155.32mn tonnes.
Total trade in 2012 is forecast to increase by 9.31% y-o-y.
RZD Eyes Greater Asia-Europe Rail Freight Role With European Acquisitions In August 2011 it was announced that Russian Railways (RZD) is considering the acquisition of a controlling stake in Slovakia's Železnicná Spolocnost Cargo Slovakia (ZSSK Cargo). Salman Babayev, RZD's vice-president, also confirmed that the rail firm would bid for Poland's PKP Cargo, placing it in competition with the Czech Republic's CD Cargo, which is keen to merge its operations with the Polish rail freight operator.
UPS Expands Into Slovakia. UPS is planning to expand its 'UPS Express Freight' service into Slovakia, it was announced in February 2011. The US-based firm will incorporate Slovakia into its one-to-three business day, door-to-door service that includes customs clearance and an on-time performance guarantee.
Free Market Reforms The Way Forward. Our best case scenario for Slovakia envisions a continued move towards free market reforms and convergence with European norms. In this scenario we would expect the centre-right to maintain a significant presence on the political scene, which would work to maintain the country's fiscal credentials. This would underpin investor confidence in the country and improve the country's macroeconomic outlook. Under this scenario, we would expect an improvement in Slovakia's long-term political ratings, likely bolstered by an upgrade to the 'policy continuity' component of the ratings (currently underperforming at 70.0).
Our worst-case scenario involves a reversal of the reform trajectory that began in June 2010, likely spurred on by a return of the Direction - Social Democracy (Smer-SD) party to the political stage. A rollback of reforms would have a damaging effect on a number of fronts. First, ethnic relations would likely worsen as the scant reforms already in place to improve the situation of ethnic minorities in Slovakia would be reversed. The resultant negative impact on the economic situation of Slovakia's minorities would likely exacerbate inter-ethnic tensions. Relations with the EU would deteriorate as the treatment of minorities and human rights would once again become a core friction point between the two. Furthermore, this would impact on relations with Hungary, given the large ethnic Hungarian population living in Slovakia.
We would expect investors to spurn Slovakia on account of the likely deterioration in the fiscal position of the country and increased policy risks. The sovereign debt crisis in the eurozone has thrown a spotlight on countries' fiscal accounts, with those less prudent suffering from investor aversion. As such, Slovakia's economic growth outlook would come into question and the population's living standards would deteriorate relative to the country's neighbours. This would pose serious political challenges to the government, likely causing further widening of the fiscal deficit to stoke popular support.
Click for Report details:Slovakia Freight Transport Report 2012
