Slovakia successfully on course for the EU
- Strong economic growth
- Austria is the third-largest direct investor
- Shrinking current account deficit and unemployment rate
In the EU referendum held last May 92.5 percent of the votes cast were in favour of Slovakia joining the European Union. It its thus certain that Slovakia will become a member of the EU in May 2004. In the run-up to EU accession Slovakia can boast an encouraging economic development: its gross domestic product (GDP) increased by 4.1 percent in the first quarter of 2003. For the full year 2002 the Slovak economy grew by 4.4 percent. In the first quarter of this year exports of goods and services were in excess of imports for the first time since the comparable 1995 period, and were the driving force of the high economic growth. "For the full year 2003 we expect the Slovak economy to continue to show impressive growth of 3.7 percent, in spite of a difficult global environment, following a handsome 4.4 percent achieved in 2002," says Marianne Kager, Chief Economist of Bank Austria Creditanstalt (BA-CA).
An important trading partner for Austria
Slovakia is an important trading partner for Austria: In 2002 Austrian exports to Slovakia reached a volume of EUR 1.1 billion. This corresponds to 4.5 percent growth on a year earlier. The share of Austrian exports to Slovakia in total Austrian exports has climbed since 1994, the first year after the split-up of Czechoslovakia, from 0.9 percent to 1.4 percent last year. Moreover, Austria, accounting for 15 percent of all investment, is the third-largest direct investor in Slovakia, ranking behind Germany (26 percent) and the Netherlands (17 percent).
Shrinking unemployment and current account deficit
In May 2003 the unemployment rate had receded to 14.8 percent, compared to 17.7 percent a year earlier. The main reason for the decline was an increase in jobs in the service sector.
A favourable trend was also seen in the current account deficit, which narrowed to EUR 165 million or -4.3 percent of GDP in the first quarter of this year. This compares with a shortfall of EUR 356 million in the first quarter of 2002.
Early price adjustments
Consumer prices in Slovakia were up 8.4 percent in June in a year-on-year comparison. The reasons for this hike were increases in a large number of regulated prices and taxes early this year. This means that Slovakia - in contrast to some other countries - has begun to make the necessary adjustments early on, i.e. in good time before the introduction of the euro. The increases of the taxes on tobacco, beer and mineral oil in August are likely to keep inflation at a high level also throughout the second half of the year. "We predict 8.4 percent inflation for 2003 on average for Slovakia," says Ms Kager.
In June the Slovak government decided to embark on a sweeping tax reform, providing for a uniform rate of 19 percent for income, corporation and value added taxes. The current rates are 10 percent and 38 percent for income tax, 25 percent for corporation tax and 20 percent and 14 percent for value added tax. The Slovak Parliament has already approved a standard 19 percent rate for VAT. BA-CA Chief Economist Kager summarises the situation as follows, "Slovakia's economic development and willingness to tackle reforms are impressive. It remains to be seen whether the tax reform will confirm the government's expectations, namely that it will have stimulating effects on the economy and budget revenue will decline only marginally as a result, and whether the tax reform really is socially digestible."
Enquiries: Bank Austria Creditanstalt Group Public Relations
Walter Graßl, Tel. +43 (0)5 05 05 ext 57126