Economic Developments of Slovakia as an EU and Euro Area Member - PowerPoint PPT Presentation

Economic Developments of Slovakia as an EU and Euro Area Member Ivana Šikulová - Ivan Okáli Institute of Economic Research, Slovak Academy of Sciences Working Group on Longer-Term Prospects and Structural Change AIECE, 4 November 2009, Brussels

Structure of the presentation • The road to the European Union • Economic growth and real convergence • Labour market development • Foreign trade and FDI • Fiscal and monetary policy • Euro adoption • Challenges for the Slovak economy

Milestones for Slovakia • December 1999 - beginning of accession negotiations • May 2004 - EU accession • December 2007 - joining Schengen zone • January 2009 - EMU accession

Economic growth of Slovakia in comparison with the NMS average and the EU-15 (%) 12 10 8 6 4 2 0 2004 2005 2006 2007 2008 Slovakia NMS average EU -15 Source: Eurostat, 2009.

Real convergence of Slovakia in comparison with other NMS and the EU-15 (GDP per capita as % of the EU-27 average) 120 100 80 60 40 20 0 2004 2005 2006 2007 2008 EU - 15 Slovenia Czech rep. Slovakia Estonia Hungary Lithuania Poland Latvia Romania Bulgaria Source: Eurostat, 2009.

Regional GDP (PPS per inhabitant, % of the EU-27 average) 160 140 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 Bratislava region West Slovakia Middle Slovakia East Slovakia Source: Eurostat, 2009.

Unemployment rate in Slovakia in comparison with the NMS average and the EU-15 (%) 20 18 16 14 12 10 8 6 4 2 0 2004 2005 2006 2007 2008 Slovakia NMS average EU -15 Source: Eurostat, 2009.

Share of long-term unemployment (12 months and more) by NUTS 2 regions (%) 20 18 16 14 12 10 8 6 4 2 0 2004 2005 2006 2007 2008 Bratislava region West Slovakia Middle Slovakia East Slovakia Source: Eurostat, 2009.

Employment rate in Slovakia in comparison with the NMS average and the EU-15 (%) 70,0 68,0 66,0 64,0 62,0 60,0 58,0 56,0 54,0 52,0 50,0 2004 2005 2006 2007 2008 Slovakia NMS average EU -15 Source: Eurostat, 2009.

The most open EU economies (the sum of exports and imports of goods and services measured as % of GDP, 2007) 350 300 250 200 150 100 50 0 LU MT BE SK EE HU CZ IE BG NL SI LT AT Source: World Bank, 2009.

Year-on-year changes in exports and imports by individual months of 2008 and 2009 140 130 120 110 100 90 80 70 60 50 40 I. II. III. IV. V. VI. VII. VIII. IX. X. Xi. XII. I. II. III. IV. V. VI. VII. VIII. Index of total imports Index of total exports Source: Statistical Office of the SR, 2009.

FDI inflow to Slovakia by sector of investment (mil. SKK, net changes in respective years) 200 000 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 -20 000 Enterprise sector Banking sector Source: NBS, 2009.

Structure of FDI inflows in the Slovak regions (until December 2007) 67% 7% 5% 3% 9% 6% 2% 1% Bratislava region Trnava region Tren č ín region Nitra region Žilina region B. Bystrica region Prešov region Košice region Source: NBS, 2009.

Government deficit and government debt (% of GDP) 45 40 35 30 25 20 15 10 5 0 -5 2004 2005 2006 2007 2008 -10 Government deficit Government debt Source: Eurostat, 2009.

Tax reform – 2004 Principles: • shifting of the tax burden from direct toward indirect taxes • introduction of flat tax rate in personal income tax (19%), replacing the regime with different tax brackets • reduction of the corporate tax to 19 % from the previous rate of 25 % • elimination of exceptions and special regimes

Pension reform – 2005 Three pillars (two compulsory and one voluntary) • 1. pillar based on the pay-as-you-go system - strong solidarity aspect • 2. pillar based on compulsory savings - strongly income-oriented • 3. pillar based on voluntary savings

Development of the HICP in Slovakia compared with the reference value in 1999–2008 (average annual data, %) 14 12 10 8 6 4 2 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 HICP in Slovakia Reference value Source: Eurostat, 2009, own calculations.

ERM II membership • 28 November 2005 - ERM II entry 38.4550 SKK/EUR (±15 % ) • 19 March 2007 - revaluation of the central parity 35.4424 SKK/EUR • 29 May 2008 - revaluation of the central parity 30.1260 SKK/EUR • 8 July 2008 - conversion rate 30.1260 SKK/EUR

Long-term interest rates in Slovakia compared with the reference value (average annual data, %) 7 6 5 4 3 2 1 0 2004 2005 2006 2007 2008 Long-term interest rates Reference value Source: Eurostat, 2009, own calculations.

Fulfilment of the Maastricht criteria in the SR in 2007 (fiscal criteria) and in the period April 2007 – March 2008 (other criteria) Reference value Slovakia Criterion Government deficit (% GDP) 3.0 2.2 Government debt (% GDP) 60.0 29.4 HICP inflation (%) 3.2 2.2 Long-term interest rates (%) 6.5 4.5 Exchange rate stability two years in ERM II fulfilled without severe tensions Source: European Commission, 2008.

Integration into the EMU • positive effects already before euro adoption (pressure on responsible economic policy) • stabilizing effects during the global economic crisis • elimination of exchange rate risk • reduction of transaction and administrative costs • greater price transparency and competition • positive effects on FDI, foreign trade, employment, long-term growth of the economy • increase in standard of living • continuation of the real convergence process

Challenges for the Slovak economy • real convergence • improvement of competitiveness • knowledge-based economy: education, research and development, innovation To ensure that the adoption of the euro is a success, Slovakia must pursue its efforts to maintain a low-inflation environment, be more ambitious with regard to budgetary consolidation, and strengthen its competitiveness position.

Thank you for your attention