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World > Europe > Slovakia > Economy (Notes)

Slovakia - Economy (Notes)


ECONOMY
Since the establishment of the Slovak Republic in January 1993, Slovakia has continued the difficult transformation from a centrally-planned to a modern market-oriented economy. This reform slowed in the 1994-98 period due to the crony capitalism and irresponsible fiscal policies of Prime Minister Vladimir Meciar's government. While economic growth and other fundamentals improved steadily during Meciar'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 pace of economic reforms picked up during the second administration of Prime Minister Mikulas Dzurinda, which oversaw the simplification of the tax system, reforms of the labor code and pension systems, and a large number of privatizations. The economy grew 8.3% in 2006 (the highest economic growth among OECD members and third highest growth in Central Europe), more than 9% in the first six months of 2007, and is predicted to continue at this pace through the remainder of 2007.


Slovakia entered into the European Exchange Rate Mechanism in November, 2005, and is currently on target to join the Euro Zone on January 1, 2009 by meeting or coming close to meeting the Maastricht Criteria. Headline consumer price inflation dropped from 26% in 1993 to 4.5% in 2006, and fell below 2.4% in the first months of 2007, supported by falling world energy prices and exchange rate appreciation. .The current account deficit, including the cost of the second pension pillar, reached 3.3% in 2006, but the general government deficit for 2007 is forecast at 2.9%.


Government debt was 33% of GDP in 2006.


The exchange rate has remained within the 15% fluctuation bands around the central ERM2 rate, but the central parity rate of the Slovak koruna against the Euro was revalued by 8.5% to SKK 35.4424 in March 2007 in view of significant inflows of foreign direct investment followed by the progressive acceleration of economic growth and substantial appreciation of the estimated equilibrium real exchange rate.


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, a relatively liberal labor code and a favorable geographical location are Slovakia's main advantages for foreign investors. Major pillars of sound economic reforms remain untouched even after the 2006 elections. FDI inflow grew more than 600% from 2000 and cumulatively reached an all-time high of,$17.3 billion USD in 2006., or around $18,000 per capita by the end of 2006. The total inflow of FDI in 2006 was $1.31 billion.

Germany is Slovakia's largest trading partner, purchasing 23.52% of Slovakia's exports and supplying 20.48% of its imports in 2006. Other major partners include the Czech Republic (13.9% imports and 12.3% exports), Italy (6.48% and 4.52%), Russia (1.64% and 11.24%), and Austria (5.98% and 3.37%). Slovakia imports nearly all of its oil and gas from Russia and its export markets are primarily OECD and EU countries. More than 85.1% of its trade is with EU members and with OECD countries (89.7%). Slovakia's exports to the United States made up 3.16% of its overall exports in 2006 (1 319.2 mil USD), while imports from the U.S. account for 1.25% of its total purchases abroad (559.1 mil USD).


Facts at a Glance: Geography - People - Government - Economy - Communications - Transportation - Military - Climate - Current Time - Ranking Positions - Slovak Koruna Exchange Rates
Notes and Commentary: People - Economy - Government and Political Conditions - Historical Highlights - Foreign Relations - Relations with U.S.



Facts at a Glance
Geography
People
Government
Economy
Communications
Transportation
Military
Climate
Current Time
Ranking Positions
Slovak Koruna Exchange Rates


Notes and Commentary
People
Economy
Government and Political Conditions
Historical Highlights
Foreign Relations
Relations with U.S.





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