Slovakia is in line with Maastricht for the euro accession in 2009
- In Slovakia falling inflation, rising employment and strong economic growth secure stability
- Slovakia is still the frontrunner for euro accession in 2009
In Slovakia the inflation reached a historical low point in August, meeting the relevant Maastricht criterion for the first time. UniCredit Group economists see the strong economic growth and the good balance between the domestic and external demand as clear signs for a continuing stability of the country.
In Q2 2007 growth of GDP accelerated to 9.4 per cent (Q1 2007: 9.0 per cent). According to the UniCredit Group experts growth has most likely reached its peak, taking into account the base effect a slight slowdown in H2 is expected. Despite that GDP growth should remain relatively strong and well balanced – driven both by domestic and external demand. So for the whole year 2007 a GDP growth of 8.8 per cent is expected. In 2008 GDP growth probably does not reach the record-setting 2006-2007 performance, still the strong dynamics should persist in the coming years as well.
Good news come from the Slovak labour market as the outflow of labour force has stopped. The economy is able to generate new jobs, so Debora Revoltella, UniCredit Group CEE Chief Economist, and the exodus of the workforce to foreign countries stagnated in the second quarter of 2007. Overall, employment grew by 2 per cent according to the ESA-95 methodology. As expected, unemployment fell hand-in-hand with rising employment and economic growth, so Viliam Patoprsty, UniCredit Group expert in Slovakia and Chief Analyst in UniCredit Bank Slovakia.
Slovakia starts to fulfil inflation criterion
Slovakia fulfilled the Maastricht inflation criterion – the first time in its history – in August. Harmonised inflation dropped to 1.2 per cent in August, which means the 12-months average annual inflation amounted to 2.37 per cent. The inflation criterion for that same period was 2.56 per cent. As inflation remains among the lowest in the EU countries and UniCredit Group economists expect only a slight acceleration by the end of the year, the country should be able to meet the nominal inflation criterion safely in the spring of next year. However, some inflation pressures could arise in the coming years. Despite this, the UniCredit economists expect that inflation will not “get out of hand” and should stay close to the level of Maastricht requirement, broadly moving in a range of 2.0 – 3.0 per cent.
“We see a 70 % chance of meeting all the Maastricht criteria as of the first quarter 2008,” so Viliam Patoprsty, “Slovakia should not have problems in meeting the criteria for interest rates and public debt and inflation dropped below the Maastricht criterion in August. The key issue on the way to the euro will be the public finance deficit.” Slovakia did not include the deficit of the National highway company, of public media and other components of public finance in compliance with ESA-95 methodology in the data for the last and the current year. So a possible increase in the public finance deficit for the last and the current year could follow. Despite that the fulfilment of this Maastricht criterion is still likely.