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DESPITE SWELLING UNEMPLOYMENT, ANALYSTS SAY THERE IS REASON FOR OPTIMISM

Economy beats expectations

SLOVAKIA'S economy is exceeding expectations, as the country's GDP is up by 5.5 percent year-on-year to stand at Sk308.2 billion (€7.71 billion), its best performance since 1998.
In the first quarter, GDP in real prices grew by 1.4 percentage points compared to the same period in 2003 and by 0.8 of a percentage point compared to the last three months of 2003, the Slovak Statistics Office reported.
The continuous growth of foreign demand, up by 15.8 percent, rekindled a growth in domestic demand, up by 2.5 percent, contributing to a beneficial influence on GDP.

SLOVAKIA'S economy is exceeding expectations, as the country's GDP is up by 5.5 percent year-on-year to stand at Sk308.2 billion (€7.71 billion), its best performance since 1998.

In the first quarter, GDP in real prices grew by 1.4 percentage points compared to the same period in 2003 and by 0.8 of a percentage point compared to the last three months of 2003, the Slovak Statistics Office reported.

The continuous growth of foreign demand, up by 15.8 percent, rekindled a growth in domestic demand, up by 2.5 percent, contributing to a beneficial influence on GDP.

The Slovak economy has been growing faster than the economies of Hungary and the Czech Republic, according to the Statistics Office.

The well-performing economy has also started to better the living standard of Slovaks, pumping the average monthly wage to Sk14,541 (€364). People are able to buy 2.7 percent more goods and services than a year ago.

The country's finance minister, Ivan Mikloš, believes that even more citizens, many of whom are weary of austerity measures, will start feeling economic improvements soon.

"Although the opposition and the unions criticised the government and were alarmed that the reforms would cause a sharp decline in living standards, the latest data prove an opposite trend," Mikloš told news wire SITA.

However, he also warned that there is a risk that the economy could overheat.

The GDP results have also pleased analysts, many of whom are rosy about Slovakia maintaining economic growth at more than five percent long-term.

"In our base scenario, the Slovak economy is projected to grow on average by 5 percent in the next several years thanks mainly to comprehensive supply-side reforms and a markedly improved business environment.

"These reforms, in the labour market, taxes, and the pension system, have indeed had the greatest impact on Slovakia's ability to post strong and sustainable economic growth," senior analyst with VÚB Zdenko Štefanides told The Slovak Spectator.

According to Štefanides, GDP might even surpass 5 percent growth, especially in 2005 and 2006, when such cyclical factors as the current strong global economy and recovering EU economic outlook, which are benign for external demand for Slovak exports, will have a positive impact on the country's economic development.

"Among cyclical factors helping to boost domestic demand we would point out the current negative real interest rates and likely fiscal relaxation ahead of the next scheduled parliamentary elections in 2006," Štefanides added.

According to Silvia Čechovičová, an analyst with ČSOB bank, the launch of the production of car giants PSA Peugeot and Hyundai/Kia will have an upbeat effect on exports.

"Investments should also grow, mostly thanks to the influx of foreign investment - on one hand new entities associated with the carmakers, but also other investors might come here. The attractive tax environment should also be an asset," Čechovičová told The Slovak Spectator.

The Finance Ministry wants to use the opportunity to spend most of the money saved to squeeze the deficit below the EU-approved 3.97 percent GDP, the news wire TASR wrote.

Total government consumption in the first three months fell by 2.3 percent to Sk49.5 billion (€1.24 billion).

Inspired by the positive GDP data, the Slovak currency has gained muscle, coming to stand at 39.85/87 against the Euro on June 10, its strongest value ever.

However, the rapid growth of the country's economy was accompanied over the first quarter by a rise of the jobless rate to 19.3 percent.

Jobless statistics published by the Slovak Statistics Office, which reported on May 10 that 515,500 people were out of work, differ from the data of the Central Labour Office that, at the end of March, registered unemployment at 16 percent.

"The data of the Slovak Statistics Office were obtained from a public poll, while the data of the Central Labour Office reflect the registered unemployment rate.

"However, we can still agree that both institutions recorded the same tendencies in the growth of the jobless rate in the first quarter of 2004," Martin Danko, spokesman of the Ministry of Labour, Social Affairs, and Family, told The Slovak Spectator.

According to Danko, the rate shot up due to the restructuring of industry, cuts in the number of employees in the public sector, and the implementation of major reforms in the social sphere, such as prolonging the retirement age.

"We are convinced that the major reforms in the social system, and the tax reform that came into effect on January 1, 2004, have created basic conditions for lowering the unemployment rate and increasing employment. But we will have to overcome the problem of long-term unemployment.

"We have about 200,000 people who have been unemployed for longer than two years. However, this will really take time and will probably also require other new tools of social policy," Danko added.

In the first quarter of this year, annual employment growth halted after more than three years.

The number of people working in the Slovak economy was 2,129,000. Of these, 1,891,000 were employees, 163,800 were self-employed people without employees, 65,600 were businessmen with employees, and 2,800 were members of entrepreneurial households assisting in family businesses, the news wire SITA wrote.

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