Though there have been signs over recent months that household consumption has recovered slightly, we remain fairly lukewarm in relation to Slovakia's near-term discretionary spending in the food and drink sector. Though easing slightly, unemployment remains above the 14% mark, while retail trade growth fell again in August 2013, having turned positive for the first time in 12 months in Q2 2013. Nevertheless, we expect the recovery in household spending to gain traction in 2014, and hold our forecast at 2.0%, implying a much more significant contribution of 1 percentage point to headline growth, which has relied solely on external demand since the economic crisis hit.
Headline Industry Data (local currency)
- 2013 per capita food consumption growth = +3.43% year-on-year (y-o-y); forecast compound annual growth rate (CAGR) to 2017 = +3.55%
- 2013 alcoholic drinks sales growth = +2.23% y-o-y; forecast CAGR to 2017 = +4.43%
- 2013 soft drinks sales growth = +2.77% y-o-y; forecast CAGR to 2017 = +3.25%
- 2013 mass grocery retail growth = +2.35% y-o-y; forecast CAGR to 2017 = +4.11%
Key Company Trends
Wine Industry Rising in Importance: Despite their rapidly improving quality, as evidenced by the receipt of international accolades - Slovakia-made wines are virtually unknown outside the country. According to Jaroslava Patkova, executive director of the Grape and Wine Producers of Slovakia (ZVHV), Slovak winegrowers produce high-quality wine partly in order to distinguish their products from lower-quality imports, with which they cannot compete on price. Local varieties - created specifically for Slovakian soil and climate ¬- are estimated to account for around 3% of the vineyards in the country and are growing.
Risks To Outlook
Fragile Domestic Recovery: The downside risks to our core view have subsided given the outperformance of the economy in Q2 2013. However, they have not disappeared completely. The recovery in domestic demand remains fragile, and we also note that export growth - still the pillar of economic expansion - remains vulnerable to headwinds in the eurozone, especially Germany and Czech Republic, the two most important export markets. A concentrated industrial base also creates the risk that sector shocks will have a deep impact on the wider economy.