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The economic perspective

By Beata Balogová

    
 
 TASR

TWO years ago any overview of Slovakia’s economy could have described the small central European country as “the Tatra Tiger” or “the Detroit of the East”: appropriate labels for a country with one of the highest economic growth rates in the European Union, and per capita car production at or near the highest in the world. Since Slovakia has a small, open and pro-export oriented economy, it is massively influenced by the condition of its largest trading partners in western Europe and the United States.

While in mid 2008 there were still some rosy predictions that Slovakia might escape the worst of the global economic downturn, which was by then affecting the region after the collapse of financial giants on the other side of the Atlantic, by the end of the year it became clear that the economy would not only slow but was likely to contract.

The Slovak statistics authority now forecasts that the country’s economy will contract by 3.5 percent year-on-year in 2009. Slovakia has tried some remedies similar to those used in Germany or the United States: in particular, a car-scrapping bonus designed to help keep the heart of its key industry, car manufacturing, beating.

By mid September, market watchers agreed that while the country’s economy might have suffered its worst spell during the first quarter of 2009, with a 5.4-percent year-on-year contraction, the road to recovery will be long and hard.

On a more positive note, on January 1, 2009, Slovakia became the first among the Visegrad Group of four central European countries to adopt the euro as its national currency in what observers described an exemplarily smooth switch. It came less than two decades after the collapse of the communist-era Council for Mutual Economic Assistance, or COMECON, within which Slovakia was a centrally planned economy completely insulated from the impulses of the modern market economy.

After the split of the Czechoslovak federation in 1993, Slovakia entered an era of massive privatisation under the governments of Vladimír Mečiar, during which state property was transferred to private hands. Some analysts characterise the 1994-1998 period as the era of “crony capitalism” and irresponsible fiscal policies. Though the country then posted economic growth close to 5 percent, this was mostly fuelled by government spending, for instance on highway-building.

Public spending was cut sharply after the September 1998 elections and the incoming Mikuláš Dzurinda government introduced massive reforms, including a tax reform that created a 19-percent flat rate for VAT, income and corporate taxes. The 2002-2006 government, also led by Dzurinda, went on to simplify registration procedures for entrepreneurs, shorten the period required to obtain a listing in the commercial register to five working days, introduce more flexible labour market legislation, and enact clear rules for investors seeking state subsidies. In 2005, the World Bank listed Slovakia among the 10 most pro-reform countries in its creation of a positive business environment.

Though preserving some of the previous governments’ changes, the Robert Fico government which took power in 2006 revised the Labour Code in a way that the World Bank described as weakening the flexibility of the labour market and increasing employment costs. However, the revised labour code was also dubbed as friendlier to the employees. The Fico team also made changes to the reform to the pension system introduced by the Dzurinda government. The Fico government has also attracted the attention of the European Commission for its handling of a disputed public tender involving expenditure of EU funds, the so-called bulletin-board tender.

Slovakia’s industry is dominated by sectors such as automotive, mechanical engineering, metallurgy, chemical engineering, electronics and information technology. The automotive sector has been among the fastest growing sectors in recent years. Among the biggest foreign investments are U.S. Steel, Enel, Volkswagen, Kia, PSA Peugeot Citroen, Sony, Samsung, Slovenský Plynárenský Priemysel, Stredoslovenská Energetika SSE, Východoslovenská Energetika VSE and Západoslovenská Energetika (ZSE). The largest banks are all internationally owned.

Slovakia’s unemployment rate has kept its gloomy standing near the top of the European jobless rankings for most of the past two decades. The first years of economic transformation brought the sharpest climb in unemployment, with the overwhelming majority of jobless having less education than the national average and having been out of work for more than a year. In 1998, unemployment grew to about 20 percent, giving Slovakia one of the highest jobless rates in Europe. By the end of 2006, partly as a result of the effect of reforms, unemployment had declined to 13 percent. In July 2009, unemployment stood at 12 percent, but was expected to increase in September as a result of the effects of the global economic crisis.

Sources: The Statistical Office of the Slovak Republic, SARIO, and the National Bank of Slovakia


Population 5 412 254
Density 110 / sq.km
Currency EURO
Ratings
Standard & Poor's A
Moody's A1
Fitch A+
GDP at market prices in 2008** €64,884.4 mil
GDP per capita at market prices in 2008** 11 988
GDP per capita in PPS in 2008 (EU 27=100%) 71,80%
GDP percentage change 2007/2008** 6,40%
GDP percentage change 2008/2009*-3,50%
Average nominal monthly wage for the first half of 2009 721,40 €
Unemployment rate, July 200912%
Employment rate in 200862,30%
Government deficit in 2009*-6%
VAT:19% B63(10% medicaments and medical products)
Income tax:19%td
Inflation in 20083,90%
* forecast ** estimation


These articles and related information were published in Spectacular Slovakia 2009, which you can obtain from our online shop.

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