In BMI's Business Environment Rating (BER) matrix for Q309, Slovakia is placed in joint fifth position,alongside Slovenia, out of the 14 major regional markets surveyed in Central and Eastern Europe (CEE).
In fact, Slovakia has considerably improved its position in the CEE matrix since Q408, although one ofthe reasons for this is that some other countries in the region are expected to fare worse in the currenteconomic downturn. However, Slovakia is also expected to post negative GDP growth for the year, withBMI recently revising our projection of -0.9% to -2.5% in line with the ongoing economic slowdown inthe eurozone. Beyond 2009, we expect trend growth to settle at a much lower rate than in previous years,averaging 3.4% between 2011 and 2013.
In the meantime, key draws to doing business in Slovakia will remain based on its pro-business stanceand relatively high per capita food and drinks consumption. However, its modest population size andfalling consumer purchasing power will hamper the development of the food and drinks value throughoutthe current year at least, although official figures for February 2009 suggest that food, drinks and tobaccosales are holding up well, rising by 12.9% year-on-year (y-o-y), despite a double-digit fall in terms ofoverall retail sales. Through 2013, we expect an 18% US dollar increase in food consumption atconsumer prices, to some US$6.9bn. The January 2009 adoption of the euro is not expected to make amajor difference to prices, as it seems to have resulted in price developments that were in line with thegovernment expectations. Consequently, the authorities do not envisage needing to introduce measures toprevent unjustified increases in prices. What is more, some consumer products, including food andelectronics, are actually priced at lower levels, due to rounding down, rather than up, of their previousprices.
In terms of individual food and beverages segments, the figures released in April 2009 by the SlovakianBeer and Malt Producers' Association (SZVPAS) show that beer sales are struggling, falling by between10 and 15% in the first two months of 2009. The decline has been attributed to a number of factors,including colder weather, the strength of the euro that is encouraging imports, fluctuating prices of rawmaterials, as well as falling consumer confidence. In fact, consumers are already turning to cheaperproducts in the face of a price increase implemented by some brewers to compensate for rising rawmaterial prices. The Association reported that the share of non-premium brands as a percentage of totalconsumption increased from 30% during 2008 to as much as 70%, which will be negatively reflected inmarket values. Breweries such as Heineken Slovensko are attempting to address this trend through thepromotion of larger volume and thus value-for-money packaging, although we expect the sales of beer tocontinue struggling in the face of the current economic adversity.
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