Discover

'Slovakia' is a middle size economy of central Europe. Slovakia is member of the European Union. Its capital, Bratislava, is the largest financial centre in Slovakia.

Contents

Slovakia economic introduction and policy

Slovakia economic survey 1993 to 2007

History

Economic growth

Fiscal policy

Foreign direct investment

Services

Industry

Agriculture

R&D

Outcome

See also

External links

Slovakia economic introduction and policy

Slovakia is enjoying sustained high economic growth. Unemployment has fallen considerably, although long-term unemployment remains stubbornly high. The incoming government has made achieving a more equal distribution of income a priority insofar as this can be done without damaging long-term growth prospects. Ensuring that the benefits of high economic growth are more widely distributed is vital for making such growth sustainable. This objective calls for policies that give more priority to poverty alleviation, strengthen employment and remove barriers to competition in product markets. In the long term, improving education outcomes, including by reducing the impact of socioeconomic background on outcomes, will be central to sustaining high economic growth and social cohesion.

Slovakia economic survey 1993 to 2007

Slovakia is undergoing the difficult transition from a centrally planned economy to a modern market economy. Two governments of the Prime Minister Mikuláš Dzurinda (centrist-right, Christian Democratic coalition) made progress in 1998-2006 in macroeconomic stabilization and main structural reforms. Major privatizations are nearly complete, the banking sector is almost completely in private sector hands, and foreign investment has picked up. Slovakia's economy exceeded expectations in 2001-2005 during the general European slowdown. Despite the high rates of economic growth, the country has failed to address regional imbalances in wealth and employment. Unemployment peaked at 19.2%[[1]] (Eurostat regional indicators) in 2001 and though it has fallen to (depending on the methodology) 9.8%((cn)) or 13.5% as of September 2006, it remains a problem. GDP per capita ranges from 120% of EU average in Bratislava to only 39% in Eastern Slovakia (minimum wage is set at EUR 207 per month, average salary is above EUR 500 per month).

History

Since the establishment of the Slovak Republic in January 1993, Slovakia continues the difficult transition from a centrally planned economy to a modern market economy (a reform slowed in the 1994-98 period due to the crony capitalism and other fiscal policies of Prime Minister Vladimír Mečiar's government). While economic growth and other fundamentals improved steadily during Mečiar's term, public and private debt and trade deficits soared, and privatization, often tarnished by corrupt insider deals, progressed only in fits and starts. Real annual GDP growth peaked at 6.5% in 1995 but declined to 1.3% in 1999. Much of the growth in the Meciar era, however, was attributable to high government spending and over-borrowing rather than productive economic activity.
The economic growth, the strongest in Central Europe, has been more balanced since then and Slovakia's economy exceeded expectations in the early 2000s, despite recession in key export markets. The Slovak government made progress in 2001 in macroeconomic stabilization and structural reform, but this came at a cost of spiraling unemployment. Solid domestic demand boosted economic growth to 4.1% in 2002. Strong export growth, in turn, pushed economic growth to a still-strong 4.2% in 2003 and 5.4% in 2004, despite a downturn in household consumption. Multiple reasons entailed a GDP growth of 6% in 2005. Headline consumer price inflation dropped from 26% in 1993 to an average rate of 7.5% in 2004, though this was boosted by hikes in subsidized utilities prices ahead of Slovakia’s accession to the European Union. In July 2005, the inflation rate dropped to 2.0% and is projected at less than 3% in 2005 and 2.5% in 2006.

Economic growth

GDP growth reached 8.3% in 2006 according to the statistical office of the Slovak Republic (the year-to-year growth amounted to unexpected 9.8% in the 3th quarter of 2006 and stayed high at 9.5% year-to-year change in the 4th quarter of 2006), and 8.0% in 2007. In 2006, Slovakia reached the highest economic growth among the members of OECD and the third highest in the EU (just behind Estonia and Latvia).

Fiscal policy

The current account deficit from its recent peak at $1.9 billion (8.8%) of GDP in 2001 shrank to $1.4 billion (3.4%) of GDP in 2004. A drop in the trade deficit accounted for most of the improvement. The foreign trade balance is now largely influenced by strong growth in capital good imports related to foreign investments in the country. Slovakia’s total foreign debt was $23.7 billion at the end of 2004, up $5.4 billion from the 2003. The increase in the level of debt was caused largely by exchange rate losses of the dollar. Budget performance in 2005 was strong, as the government aimed to implement fiscally responsible policies to drive the budget deficit below the Maastricht-defined ceiling of 3% of GDP by 2007 in order to qualify for euro adoption. The government's budget for 2006 targets a general government deficit of 2.9% of GDP.

Foreign direct investment

(FDI) in Slovakia has increased dramatically. Cheap and skilled labor force, low taxes, a 19% flat tax for corporations and individuals, no dividend taxes, liberal labor code and a favorable geographical location are Slovakia’s main advantages for foreign investors. FDI has grown by 600% since 2000 to around $13.6 billion or $2,540 per capita by the end of 2004.
In October 2005 new investment stimuli introduced – more favorable conditions to IT and research centers, especially to be located in the east part of the country (where is more unemployment), to bring more added value and not to be logistically demanding.
Origin of direct foreign investment 1996-2005 – the Netherlands 24.3%; Germany 19.4%, Austria 14.1%; Italy 7.5%, United States (8th largest investor) 4.0%.Top investors from countries, by companies: Deutsche Telecom (Germany), Neusiedler (Austria), Gaz de France (France), Gazprom (Russia), U.S.Steel (U.S.), MOL (Hungary), ENEL (Italy), E.ON (Germany)...
Sectors of direct foreign investment - industry 38.4%; banking and insurance 22.2%; wholesale and retail trade 13.1%; production of electricity, gas and water 10.5%; transportation and telecommunications 9.2%.
'Foreign direct investment' ''" on green field"''

★ ''inflows'' -'2003 year': 756 millions USD,'2004 year': 1261 millions USD,'2005 year': 1908 millions USD

★ ''outflows''-'2003 year': 22 millions USD,'2004 year': -144 millions USD,'2005 year': 146 millions USD

Services

Slovakia's service sector grew rapidly during the last 10 years and now employs about 44% of the labor force and contributes with over 66% to GDP. Slovakia's tourism receipts have been rising in recent years, doubling from 640 millions USD in 2001 1.2 billions USD in 2005. However, this sector still remains underdeveloped in comparison with neighboring countries.

Industry

Slovakia became industrialized mostly in the 20th century. Heavy industry {including coal mining and the production of machinery and steel) was built for strategic reasons because Slovakia was less exposed to the military threat than the western parts of Czechoslovakia. after the end of the Cold War, importance of industry, and especially of heavy industry, declined. In 2005, industry (including construction) accounted for 28.7% of GDP, compared with 49% in 1990. Nowadays, building on a long-standing tradition and a highly skilled labor force, main industries with potential of growth are following sectors: Automotive, Electronics, Mechanical engineering, Chemical engineering, Information technology. The automotive sector is among the fastest growing sectors in Slovakia due to the recent large investments of Volkswagen (Bratislava), Peugeot (Trnava), and Kia Motors (Žilina). Passenger car production was 295,000 units in 2006, a figure which will double when Kia's factory reaches full capacity. By 2009 therefore Slovakia will have the highest per capita car production in the world. Other big industrial companies include US Steel (metallurgy), Slovnaft (oil industry), Samsung Electronics (electronics), Sony (electronics), Mondi Business Paper (paper), Hydro Aluminium (aluminum production), and Whirlpool. In 2006, machinery accounted for more than a hlaf of Slovakia's export.

Agriculture

In 2005, agriculture accounted for 3.4% of GDP (compared to 6.9% in 1993) and occupied about 4.7% of the labor force (down from 10.2% in 1994). Over 40% of the land in Slovakia is cultivated. The southern part of Slovakia (bordering with Hungary) is known for its rich farmland. Growing wheat, rye, corn, potatoes, sugar beets, grains, fruits and sunflowers. Vineyards are concentrated in Little Carpathians, Tokaj, and other southern regions. The breeding of livestock, including pigs, cattle, sheep, and poultry is also important.

R&D

According to a recent report by the European Commission, Slovakia (along with some other Central and Eastern European economies) is low down on the list of EU states in the area of innovation (Slovakia ranks 22nd). Within the EU, it ranks next to last on knowledge creation and last for innovation and entrepreneurship. In the process of transition to a knowledge economy, it particularly lacks investment into education and a broader application of IT. World Bank urges Slovakia to upgrade information infrastructure and reform education system, OECD states that a stronger product market competition would help.
In March 2006, the Slovak government introduced new measures to implement the Action Plan for R&D and Innovation. The program covers the period from 2006 to 2010. The RDA is expected to launch at least one call for the expression of interests related to this program each year. The annual budgets for the program will be set by the RDA. The overall amount available for the program depends on the annual national budget resources and is likely to vary from year to year. Following an increase of around 50% in budget resources, the RDA disposes of a total budget of €19.31 million in 2006.

Outcome

The authorities now need to prepare the economy for life in the Euro area. In the short term, this entails heading off a potential post-entry boom. In the longer term, it entails maintaining flexible labour- and product markets so as to facilitate adjustment to idiosyncratic shocks. Slovakia has made solid progress in the past decade in catching up to living standards in the EU15 countries, but still has far to go. This progress has been achieved through high productivity growth. Labour utilisation, however, has detracted from progress. There is still considerable scope to support catch up and reduce relative poverty through increasing employment rates. Similarly, regulatory reform that supports competition in product markets would both strengthen productivity growth and reduce income inequality. In the long term, improving education outcomes, including by reducing the impact of socio-economic background on outcomes, will be central to sustaining high economic growth and reducing income inequality.

See also

★ Tatra Tiger

★ Slovakia

★ Economy of Europe

External links

★ OECD's Slovakia country Web site and OECD Economic Survey of Slovakia

★ Economy of Slovakia from The World Factbook

★ Slovakia report(monitor 2005)

★ Slovakia report (Index of economic freedom)

★ Slovakia in selected macro-economic numbers