Businesses less confident in the economy

SLOVAK businesses have been using darker colours to paint their picture of the country's economic prospects. Last month, the confidence of businesses and consumers in Slovakia's economy reached its lowest level since the last parliamentary elections in June 2006.

SLOVAK businesses have been using darker colours to paint their picture of the country's economic prospects. Last month, the confidence of businesses and consumers in Slovakia's economy reached its lowest level since the last parliamentary elections in June 2006.

The economic sentiment index dipped 2.9 points month-on-month in October to stand at 104.9 points. It was dragged down by falling confidence in the economy in the retail and service sectors, and among consumers, the Slovak Statistics Office reported.

The index, which reflects the expectations of all the players in the business environment, dipped 1.5 percent year-on-year. But it has grown by nearly five points from October 2005.

"The main reason behind this drop is that the government is not solving the real problems of the business environment," Robert Kičina, executive director of the Business Alliance of Slovakia, told The Slovak Spectator. "Instead, it has been focusing on harming the elements of the business environment that businesses saw as positive or unproblematic, for example labour or tax laws.

"The recent laws about health insurers and the social insurance system are bringing uncertainty into the business environment."

The mood of consumers has also grown darker, according to the Statistics Office, with the consumer confidence indicator falling 3.4 points month-on-month and four points from last year.

Compared to September, consumers have shown less confidence in all the measured areas: the development of the country's economic situation, chances for saving, expected household financial situation, and the development of employment, according to the Statistics Office.

Market watchers suggest that consumers have been losing faith in the economy because of the swelling prices of food and energy. The lack of qualified labour might also add to the negative sentiments, experts told the Sme daily.

The economic sentiment index is compiled by adding the confidence indicators from industry (40 percent), services (30 percent), consumers (20 percent), the construction sector (five percent) and retail (five percent).

The year 2005 serves as the base year, when the score was set at 100 points.

Retail most pessimistic

Industry's confidence index has remained at its September level - 9.3 points - due to the expected increase of production. The most pessimistic prospects in October came from retail, where the index dropped by seven points month-on-month due to worsening expectations about the business situation.

The service sector was in a darker mood for the third month in a row. Its confidence index dropped by six points month-on-month to stand at 29.3 points, the Statistics Office said.

Construction firms seem to be the most optimistic, because the construction industry is experiencing a boom in Slovakia, experts said.

The Economy Ministry is not putting much stock in the worsening economic sentiments, Sme reported.

"If you compare it with other countries, we are in a similar position," ministry spokesman Branislav Zvara told Sme.

Economic confidence dropped across Europe in September, the Statistics Office reported. In the European Union, the economic sentiment indicator dropped by 2.3 points from August to 110.8 points, and in the eurozone it dropped by 2.8 points to stand at 107 points.

However, the indicator still is high above the long-term average.

It's hard to tell when optimism will pick up again in Slovakia, Kičina said. The optimism or pessimism of the business community depends on what steps the government takes related to the business environment, he said.

"Since the government has failed to clearly communicate what reform measures it has planned to improve the business environment in the near future, it is hard to estimate when the business community will turn more optimistic again," he said.

The Slovak Business Alliance's business environment index, which regularly measures changes in the conditions of doing business in Slovakia, was gradually dropping last year as well, Kičina told The Slovak Spectator.

"This means that the steps taken by the government so far have been perceived negatively," he said.

Businesses see the greatest hurdles to running business in Slovakia as the low enforceability of law and the poor functioning of the courts, the instability and ambiguity of some laws, high payroll costs, corruption and the high administrative burden on businesses, Kičina said.

Slovakia should focus on reforms in the areas of the business environment that the World Bank uses to compare economies, because Slovakia's economy falls behind more developed countries in most categories, Kičina added.

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