Economy of Slovakia
Encyclopedia
Slovakia
's economy increasingly resembles that of a so-called developed country
. With the highest sustained GDP growth in the European Union
, reporting 10.4% in 2007 and the highest rating from V4 countries, the Slovak economy has been considered a tiger economy
known as the Tatra Tiger
. Slovakia has been an EU member state since 2004 and adopted the euro
currency at the beginning of 2009. Its capital, Bratislava
, is the largest financial centre in Slovakia. Unemployment
has fallen considerably, although long-term unemployment remains high. 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. GDP per capita at purchasing power parity
was €18,100 in 2010, which was 74% of the EU averagehttp://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-21062011-AP/EN/2-21062011-AP-EN.PDF.
has undergone a transition from a centrally planned economy
to a free market economy, a process which some observers believe was 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 also rose, and privatization
was uneven. Real annual GDP growth peaked at 6.5% in 1995 but declined to 1.3% in 1999.
Two governments of the "liberal-conservative" Prime Minister Mikuláš Dzurinda
(1998–2006) pursued policies of macroeconomic stabilization and market-oriented structural reforms. Nearly the entire economy has now been privatizatized, and foreign investment has picked up. Economic growth exceeded expectations in the early 2000s, despite recession
in key export markets. In 2001 policies of macroeconomic stabilization and structural reform led to spiraling unemployment. Unemployment peaked at 19.2% http://www.icegec.hu/eng/publications/_docs/news/news_2006_february.pdf (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. 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. In 2006, Slovakia reached the highest economic growth (8.9%) among the members of OECD and the third highest in the EU (just behind Estonia
and Latvia
). The country has had difficulties addressing regional imbalances in wealth and employment. GDP per capita ranges from 167% of EU average in Bratislava to only 51% in Eastern Slovakia http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/1-24022011-AP/EN/1-24022011-AP-EN.PDF.
In 2010, Slovakia grew by 4.0% which was the highest growth among new EU member states.
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.
(FDI) in Slovakia has increased dramatically. Cheap and skilled labor, a 19% flat tax rate for both businesses and individuals, no dividend taxes, a weak labor code, and a favorable geographical location are Slovakia’s main advantages for foreign investors. 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 $2.54 billion. 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 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 by companies: Deutsche Telekom (Germany), Neusiedler (Austria), Gaz de France (France), Gazprom (Russia), U.S.Steel (U.S.), MOL (Hungary), ENEL (Italy), E.ON (Germany)...
Foreign investment sectors - industry 38.4%; banking and insurance 22.2%; wholesale and retail trade 13.1%; production of electricity, gas and water 10.5%; transport and telecommunications 9.2%.
Foreign direct investment " on green field"
has been rising in recent years, income has doubled from 640 million USD in 2001 to 1.2 billion USD in 2005. However, this sector still remains underdeveloped in comparison with neighbouring countries.
(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, the importance of industry, and especially of heavy industry, declined. In 2010, industry (including construction) accounted for 35.6% 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 Plant, Žilina
). Passenger car production was slightly more than 400,000 units in 2009 , a figure which has almost doubled after Kia's factory opening. By 2010 therefore Slovakia will be among the highest per capita car producers in the world. A global downturn in automobile sales, however, may limit future growth of this industry. 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 Corporation. In 2006, machinery accounted for more than a half of Slovakia's export.
s are concentrated in Little Carpathians
, Tokaj, and other southern regions. The breeding of livestock, including pigs, cattle, sheep, and poultry is also important.
, 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.
Foreign Trade
Slovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...
's economy increasingly resembles that of a so-called developed country
Developed country
A developed country is a country that has a high level of development according to some criteria. Which criteria, and which countries are classified as being developed, is a contentious issue...
. With the highest sustained GDP growth in the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
, reporting 10.4% in 2007 and the highest rating from V4 countries, the Slovak economy has been considered a tiger economy
Tiger Economy
A tiger economy is the economy of a country which undergoes rapid economic growth, usually accompanied by an increase in the standard of living. The term was initially used for Japan, South Korea, Singapore, Hong Kong, and Taiwan , and in the 1990s it was applied to the Republic of Ireland...
known as the Tatra Tiger
Tatra Tiger
"Tatra Tiger" is a nickname that refers to the economy of Slovakia in period 2002 - 2007 and after 2010 following the ascendance of a right-wing coalition in September 2002 which engaged in a program of liberal economic reforms...
. Slovakia has been an EU member state since 2004 and adopted the euro
Euro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
currency at the beginning of 2009. Its capital, Bratislava
Bratislava
Bratislava is the capital of Slovakia and, with a population of about 431,000, also the country's largest city. Bratislava is in southwestern Slovakia on both banks of the Danube River. Bordering Austria and Hungary, it is the only national capital that borders two independent countries.Bratislava...
, is the largest financial centre in Slovakia. Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
has fallen considerably, although long-term unemployment remains high. 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. GDP per capita at purchasing power parity
Purchasing power parity
In economics, purchasing power parity is a condition between countries where an amount of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates...
was €18,100 in 2010, which was 74% of the EU averagehttp://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-21062011-AP/EN/2-21062011-AP-EN.PDF.
History
Since the establishment of the Slovak Republic in January 1993, SlovakiaSlovakia
The Slovak Republic is a landlocked state in Central Europe. It has a population of over five million and an area of about . Slovakia is bordered by the Czech Republic and Austria to the west, Poland to the north, Ukraine to the east and Hungary to the south...
has undergone a transition from a centrally planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
to a free market economy, a process which some observers believe was slowed in the 1994-98 period due to the crony capitalism
Crony capitalism
Crony capitalism is a term describing a capitalist economy in which success in business depends on close relationships between business people and government officials...
and other fiscal policies of Prime Minister Vladimír Mečiar
Vladimír Meciar
Vladimír Mečiar is a Slovak politician who was Prime Minister of Slovakia from 1990 to 1991, from 1992 to 1994, and from 1994 to 1998. He is the leader of the People's Party - Movement for a Democratic Slovakia...
's government. While economic growth and other fundamentals improved steadily during Mečiar's term, public and private debt and trade deficits also rose, and privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
was uneven. Real annual GDP growth peaked at 6.5% in 1995 but declined to 1.3% in 1999.
Two governments of the "liberal-conservative" Prime Minister Mikuláš Dzurinda
Mikuláš Dzurinda
Mikuláš Dzurinda is a Slovak politician who was Prime Minister of Slovakia from 30 October 1998 to 4 July 2006. He was a founder and leader of the Slovak Democratic Coalition and the Slovak Democratic and Christian Union...
(1998–2006) pursued policies of macroeconomic stabilization and market-oriented structural reforms. Nearly the entire economy has now been privatizatized, and foreign investment has picked up. Economic growth exceeded expectations in the early 2000s, despite recession
Recession
In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...
in key export markets. In 2001 policies of macroeconomic stabilization and structural reform led to spiraling unemployment. Unemployment peaked at 19.2% http://www.icegec.hu/eng/publications/_docs/news/news_2006_february.pdf (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. Solid domestic demand boosted economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
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
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
. In July 2005, the inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
rate dropped to 2.0% and is projected at less than 3% in 2005 and 2.5% in 2006. In 2006, Slovakia reached the highest economic growth (8.9%) among the members of OECD and the third highest in the EU (just behind Estonia
Economy of Estonia
Estonia is a member of the European Union and the eurozone and is an advanced economy, according to the IMF.Before the Second World War Estonia's economy was based on agriculture, but there was a significant knowledge sector and a growing industrial sector, similar to Finland...
and Latvia
Economy of Latvia
Until the middle of 2008, Latvia had the fastest developing economy in Europe. In 2003, GDP growth was 7.5% and inflation was 2.9%. Unemployment was 9% in 2003 - 2005; however, in 2009 it rose to 23% and is the highest in the European Union. Privatization is mostly complete, except for some of...
). The country has had difficulties addressing regional imbalances in wealth and employment. GDP per capita ranges from 167% of EU average in Bratislava to only 51% in Eastern Slovakia http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/1-24022011-AP/EN/1-24022011-AP-EN.PDF.
Economic growth
In 2007, Slovakia reached the highest economic growth among the members of OECD and the EU. The annual GDP growth was 10.4% at constant prices, with the record level of 14.3% reached in the fourth quarter.In 2010, Slovakia grew by 4.0% which was the highest growth among new EU member states.
Fiscal policy
Foreign investments
Foreign direct investmentForeign direct investment
Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...
(FDI) in Slovakia has increased dramatically. Cheap and skilled labor, a 19% flat tax rate for both businesses and individuals, no dividend taxes, a weak labor code, and a favorable geographical location are Slovakia’s main advantages for foreign investors. 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 $2.54 billion. 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 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 by companies: Deutsche Telekom (Germany), Neusiedler (Austria), Gaz de France (France), Gazprom (Russia), U.S.Steel (U.S.), MOL (Hungary), ENEL (Italy), E.ON (Germany)...
Foreign investment sectors - industry 38.4%; banking and insurance 22.2%; wholesale and retail trade 13.1%; production of electricity, gas and water 10.5%; transport and telecommunications 9.2%.
Foreign direct investment " on green field"
- inflows -2003: 756 million USD,2004: 1261 million USD,2005: 1908 million USD
- outflows-2003: 22 million USD,2004: -144 million USD,2005: 146 million USD
Services
Slovak service sector grew rapidly during the last 10 years and now employs about 69% of the population and contributes with over 61% to GDP. Slovakia's tourismTourism in Slovakia
Tourism in Slovakia offers natural landscapes, mountains, caves, medieval castles and towns, folk architecture, spas and ski resorts.More than 1.6 million people visited Slovakia in 2006, and the most attractive destinations are the capital of Bratislava and the High Tatras...
has been rising in recent years, income has doubled from 640 million USD in 2001 to 1.2 billion USD in 2005. However, this sector still remains underdeveloped in comparison with neighbouring countries.
Industry
Slovakia became industrialized mostly in the second half of the 20th century. Heavy industryHeavy industry
Heavy industry does not have a single fixed meaning as compared to light industry. It can mean production of products which are either heavy in weight or in the processes leading to their production. In general, it is a popular term used within the name of many Japanese and Korean firms, meaning...
(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, the importance of industry, and especially of heavy industry, declined. In 2010, industry (including construction) accounted for 35.6% 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
Volkswagen
Volkswagen is a German automobile manufacturer and is the original and biggest-selling marque of the Volkswagen Group, which now also owns the Audi, Bentley, Bugatti, Lamborghini, SEAT, and Škoda marques and the truck manufacturer Scania.Volkswagen means "people's car" in German, where it is...
(Bratislava), Peugeot
Peugeot
Peugeot is a major French car brand, part of PSA Peugeot Citroën, the second largest carmaker based in Europe.The family business that precedes the current Peugeot company was founded in 1810, and manufactured coffee mills and bicycles. On 20 November 1858, Emile Peugeot applied for the lion...
(Trnava
Trnava
Trnava is a city in western Slovakia, 47 km to the north-east of Bratislava, on the Trnávka river. It is the capital of a kraj and of an okres . It was the seat of a Roman Catholic archbishopric . The city has a historic center...
), and Kia Motors
Kia Motors
Kia Motors , headquartered in Seoul, is South Korea's second-largest automobile manufacturer, following the Hyundai Motor Company, with sales of over 1.4 million vehicles in 2010...
(Žilina Plant, Žilina
Žilina
Žilina is a city in north-western Slovakia, around from the capital Bratislava, close to both the Czech and Polish borders. It is the fourth largest city of Slovakia with a population of approximately 85,000, an important industrial center, the largest city on the Váh river, and the seat of a...
). Passenger car production was slightly more than 400,000 units in 2009 , a figure which has almost doubled after Kia's factory opening. By 2010 therefore Slovakia will be among the highest per capita car producers in the world. A global downturn in automobile sales, however, may limit future growth of this industry. Other big industrial companies include US Steel (metallurgy), Slovnaft
Slovnaft
Slovnaft is the largest oil refinery in Slovakia. It was established in 1957 in Bratislava. In 2000, Slovnaft became part of the Hungarian MOL Group, which owns 98.4 % of the shares. Slovnaft has two foreign branches nowadays: Slovnaft CZ in the Czech Republic and Slovnaft Polska in Poland...
(oil industry), Samsung Electronics
Samsung Electronics
Samsung Electronics is a South Korean multinational electronics and information technology company headquartered in Samsung Town, Seoul...
(electronics), Sony
Sony
, commonly referred to as Sony, is a Japanese multinational conglomerate corporation headquartered in Minato, Tokyo, Japan and the world's fifth largest media conglomerate measured by revenues....
(electronics), Mondi Business Paper (paper), Hydro Aluminium (aluminum production), and Whirlpool Corporation. In 2006, machinery accounted for more than a half of Slovakia's export.
Agriculture
In 2010, agriculture accounted for 2.7% of GDP (compared to 6.9% in 1993) and occupied about 3.5% 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. VineyardVineyard
A vineyard is a plantation of grape-bearing vines, grown mainly for winemaking, but also raisins, table grapes and non-alcoholic grape juice...
s are concentrated in Little Carpathians
Little Carpathians
The Little Carpathians are a low, about 100 km long, mountain range, part of the Carpathian Mountains. The mountains are situated in Western Slovakia, covering the area from Bratislava to Nové Mesto nad Váhom, a very small part called Hundsheimer Berge is situated south of Devín Gate in...
, 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 CommissionEuropean Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
, 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
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
, it particularly lacks investment into education and a broader application of IT. World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
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.
Labour
The minimum wage in Slovakia is set at 307,- € per month, the average salary for year 2010 is 769 € per month. The level of unemployment in 2009 rose to 12.1% after a period of decreasing unemployment.Statistics
Exchange rates| Year | 2008 | 2009 |
|---|---|---|
| EUR/SKK | 30.13 | |
| USD/SKK | 21.39 |
Foreign Trade
| Year | 2008 | 2009 | 2010 |
|---|---|---|---|
| Exports € bn | 49.5 | 39.7 | 35.0 |
| Imports € bn | 50.3 | 38.8 | 34.6 |
External links
- OECD's Slovakia country Web site and OECD Economic Survey of Slovakia
- Economy of Slovakia from The World FactbookThe World FactbookThe World Factbook is a reference resource produced by the Central Intelligence Agency of the United States with almanac-style information about the countries of the world. The official paper copy version is available from the National Technical Information Service and the Government Printing Office...
- Slovakia report (monitor 2005)
- Slovakia report (Index of economic freedom)
- Slovakia in selected macro-economic numbers
- Background note Slovakia (incl. economy)