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), and 10.4 in 2007, and
was predicted to continue at this pace through the remainder of 2007.
Slovakia entered into the European Exchange Rate Mechanism in November 2005, and will join the Euro Zone on January 1, 2009 having met 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 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 million), while imports from the
U.S. account for 1.25% of its total purchases abroad ($559.1 million).
GDP (2007): $92.6 billion.
GDP growth rate (2007): 10.4%.
Nominal GDP per capita (2007): $17,110 (International Monetary Fund).
Unemployment (May 2007): 7.6%.
Natural resources: Antimony, mercury, iron, copper, lead, zinc, magnesite, limestone, lignite, uranium (not yet in production).
Agriculture: Products--grains, potatoes, poultry, cattle, hogs, sugar, beets, hops, fruit, forest products.
Industry: Types--iron and steel, chemicals, automobiles, light industry, food processing, back-office support, engineering, building materials.
Trade (2007): Exports--$71.1 billion: vehicles, iron and steel, machinery and energy equipment, plastics, fiber optics. Imports (2007)--$72.1 billion: mineral fuels and oils, machinery, audio/video equipment, vehicles. Partners (2006)--Germany 23.7%, Czech Republic 14.1%, Italy 6.5%, Poland 6.2%, Austria 6%, Hungary 5.8%, France 4.3%, Netherlands 4.2%.
Foreign investment (1989-2006, OECD data): Cumulative--$17.3 billion, FDI inflow $4.2 billion in 2006 (highest-ever FDI inflows). Sources of direct foreign investment--Netherlands 19.5%, Germany 18.2%, Austria14.8%, Italy 12.4%, Hungary 6.1%, U.K. 5.3%, Czech Republic 4.1%, Republic of Korea 3.6%, U.S. 3.3% (9th largest investor)**, Cyprus 2.7%. Sectors of direct foreign investment--industrial production, financial services, energy production and distribution, wholesale and retail trade, transportation and telecommunications.
*Figures
are based on immediate city's (not region) Permanent Resident
Population.
**Government of Slovakia official statistic. A recent U.S. Embassy
survey found that, taking into account investments of U.S. subsidiaries
in Europe, U.S. investment is more than 15% of the total.
