OECD: Slovak economy should maintain growth

SLOVAKIA's economy should be able to maintain its swift growth, the Organization for Economic Cooperation and Development (OECD) said in its latest economic outlook.
The OECD expects the Slovak economy to grow 4.8 percent this year and 5.7 percent in 2006.

SLOVAKIA's economy should be able to maintain its swift growth, the Organization for Economic Cooperation and Development (OECD) said in its latest economic outlook.

The OECD expects the Slovak economy to grow 4.8 percent this year and 5.7 percent in 2006.

"The expansion in domestic demand that began in the first half of 2004 has gathered pace and GDP [gross domestic product] growth is expected to remain in the 4 to 6 percent range over the projection horizon," according to the OECD.

Financial analysts say that private consumption will push the growth.

"Real GDP growth this year and the beginning of next will probably be driven by domestic demand, especially investment and private consumption. Further ahead, in 2007-8, significant contribution to growth will come from the rise in export capacity connected to the production of newly established FDI-controlled manufacturing plants," Martin Lenko, an analyst with the VÚB bank, told The Slovak Spectator.

The rise in private consumption stemmed from a number of factors, most of which will gain in force this year, the analyst says.

"First, rises in wages are supporting growth. Wages in real terms probably grew around 7 percent in the first quarter of the year and our forecast for the full-year should gain around 5 percent - about twice as much as last year. [There was a 2.5 percent gain in 2004.]

Another reason for acceleration in private consumption are declining interest rates and a propensity to consume rather than save, along greater competition among banks, which will likely support household borrowing and spending," Lenko said.

However, the prevailing unemployment rate continues to disappoint the OECD. The organization does not expect the rate to fall bellow 17 percent until late 2006. The reason behind Slovakia's unemployment is that new investments and labour market reforms have not yet created jobs. Nevertheless, analysts remain positive.

"Available data from the beginning of the year for the first four months suggest that the improvement on the labour market that started in 2004 will likely continue. This year, we expect the economy to create more jobs than last year," Lenko said.

According to the analyst, there are 1.8 percent more jobs than there were a year ago, based on first quarter data.

"The registered unemployment rate has already fallen below 12 percent, and the unemployment will continue to decline this year," Lenko added.

The OECD assumes that Slovakia will be able to meet the criteria for euro adoption if it is fiscally disciplined enough and strict on its budget policies.

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