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EXPANSION WILL SLOW THIS YEAR ON FISCAL AUSTERITY AND LOWER WAGE GROWTH, SAY ANALYSTS

Slovak economy outpaces predictions

SLOVAKIA'S economic growth should remain strong this year after significantly outperforming growth in neighbouring countries in 2002, as well as the predictions of domestic analysts and international institutions.
Figures released on March 13 by the country's Statistics Office point to a growth in gross domestic product (GDP) last year of 4.4 per cent, including a 5.4 per cent increase for the fourth quarter. Western economic institutions had predicted GDP in Slovakia to grow by 4.0 to 4.3 per cent in 2002, while the National Bank of Slovakia (NBS) had predicted growth of 3.8 per cent or less.
"Slovakia last year distinctly exceeded the other Visegrad Four countries in economic growth," said Ľudová banka analyst Mário Blaščák, noting that the country's GDP growth has risen from 2.2 per cent in 2000 and 3.3 per cent in 2001 (see graph, page 6).

SLOVAKIA'S economic growth should remain strong this year after significantly outperforming growth in neighbouring countries in 2002, as well as the predictions of domestic analysts and international institutions.

Figures released on March 13 by the country's Statistics Office point to a growth in gross domestic product (GDP) last year of 4.4 per cent, including a 5.4 per cent increase for the fourth quarter. Western economic institutions had predicted GDP in Slovakia to grow by 4.0 to 4.3 per cent in 2002, while the National Bank of Slovakia (NBS) had predicted growth of 3.8 per cent or less.

"Slovakia last year distinctly exceeded the other Visegrad Four countries in economic growth," said Ľudová banka analyst Mário Blaščák, noting that the country's GDP growth has risen from 2.2 per cent in 2000 and 3.3 per cent in 2001 (see graph, page 6).

Most economic analysts credited the growth to higher consumer and public-sector demand driven by a nearly 6 per cent growth in real wages, the largest growth since 1998. However, government austerity measures and utility price deregulation should slow the pace of growth this year, they said.

"Household and public-administration spending were both up, although the state's consumption slowed down towards the end of the year," said Marek Gábriš, an analyst with ČSOB bank.

"The [growth in] consumption was supported by a growth in real wages that we have not seen for several years," he said.

Nominal wages in Slovakia grew by an average of 9.3 per cent in 2002, 1.1 percentage points higher than the previous year, while real wage growth, balanced against the effects of inflation, was 5.8 per cent, 5 percentage points higher than 2001.

While wages grew in all fields monitored by the Statistics Office, the growth was most strong in public administration, defence, and education. Some analysts, however, have cautioned that government fiscal discipline from early this year and slower private-sector wage growth should mean that wages are unlikely to grow markedly in 2003.

Real wages in the Slovak public sector grew by 10 per cent on average last year, said SLSP bank analyst Juraj Kotian, while in private enterprises, wage growth topped off at 4.3 per cent.

"The very fast growth of real wages last year was caused by the public sector rather than the private sector," said Kotian, adding that real wage growth for 2003 should fall between 0 and 1 per cent.

Robert Prega, analyst from Tatrabanka, warns that accelerated inflation due to price deregulation in 2003 will create only a symbolic growth of real wages, by 0.2 percent.

"Wages grew nominally [in 2002] as people were accustomed to, but the tempo of growth in prices last year was lower than projected, which was also reflected in the higher [than projected] growth in GDP. But this year, we can expect the opposite effect," said Prega.

While GDP is not expected to grow as rapidly this year, analysts expect Slovakia to maintain one the region's most quickly expanding economies, as foreign demand and the influx of investment capital drive economic development in 2003.

"We expect that governmental measures in public finances and price deregulation to slow down [GDP growth] this year," said Gábriš.

"Foreign demand and investments should take the reins in 2003, but GDP growth should remain one of the fastest in the region. We expect it to reach 3.8 per cent in 2003," Gábriš said.

While Slovakia has closed the economic gap with other candidate countries, it will be several more years at least before the economy is performing at the level of current EU member states, say analysts.

According to the Organisation for Economic Cooperation and Development (OECD), Slovakia's GDP per capita adjusted for purchasing power standards was 11,100 euro in 2001, compared to 12,600 euro in the Czech Republic and 9,200 in Poland. GDP per capita in neighbouring Austria in 2001 was 24,400 euro.

"Again, we have come a little bit closer to the standard of living in the EU, but this road will be long and hard," said Gábriš.

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