After a good year, economists predict slower growth in 2008

ECONOMISTS are warning that Slovakia can’t keep up the same rate of economic vigour it showed in 2007. But thanks to the strong growth it has had so far, the country will still be a good prospect for investments in 2008.

ECONOMISTS are warning that Slovakia can’t keep up the same rate of economic vigour it showed in 2007. But thanks to the strong growth it has had so far, the country will still be a good prospect for investments in 2008.

Last year was easily the best in the country’s economic history, said the chief analyst with UniCredit Bank, Viliam Pätoprstý. It wasn’t just that the trends were positive, but that they appear to be sustainable, he said.

“The most positive aspect is the high and healthy economic growth and practically nothing that would cause structural imbalances,” Pätoprstý said.

The country’s fiscal policies were mildly restrictive, but that can be seen as a positive given the circumstances, he said.

“However, what I consider to be less positive was the structure of the public finance expenditures, which were directed to the traditional sectors,” Pätoprstý told The Slovak Spectator. “It has not created competitive advantages for the future.”

Mária Valachyová, senior analyst with Slovenská Sporiteľňa, said there were no economic events last year that were important on their own. What was notable, she said, was the move to shift the central parity of the Slovak currency within the Exchange Rate Mechanism (ERM) II, known as the waiting room for the euro.

In March, the European Central Bank approved an increase in the crown’s central parity from Sk38.455 per euro to Sk35.4424 per euro, which was a jump of 8.5 percent.

The steady growth in production in the automotive sector and electro-technical industry are also worth mentioning because they contributed to the faster economic growth, she said.

Juraj Valachy, an analyst with Tatra Banka, agreed that the year belonged to car producers, with the electro-technical industry confirming its second position and proving that the Slovak economy has more than one leg to stand on.

“The service industry also posted some good development, which is linked to the rising standard of living for citizens,” Valachy told The Slovak Spectator.

Marej Gábriš of ČSOB Bank said the biggest challenge of 2008 could be the slowdown of economic growth worldwide, and also in the eurozone.

“Thanks to the continuing production at car companies and the production of LCD screens, the country could be temporarily resistant (to the slowdown),” Gábriš said. “2008 will actually let us detect the weaknesses of the economy and what will require attention in the future.”

Euro decisions coming

The year’s top economic story will be the evaluation of Slovakia’s readiness to adopt the euro, Valachyová said. If the European Commission gives Slovakia the go-ahead, the market will have to wait for it to set the currency conversion level, she added.

“For domestic politics, the changes the government makes to the tax and business legislation will be important,” Valachy said.

Analysts say that Slovakia has a good chance of qualifying for the eurozone and meeting the inflation criterion on a sustainable basis.

Valachyová estimates that Slovakia has an 80-percent chance of adopting the euro.

“The most-discussed topic will be meeting the inflation criterion on a sustainable basis,” she told The Slovak Spectator. “We will most likely meet this criterion in the spring with considerable room to spare.”

Valachy also expects that Slovakia will have no problem meeting the Maastricht inflation criterion.

“Still, the euro approval will partially be a political decision,” he said.

By the end of 2008 and into 2009, the 12-month HICP (Harmonized Index of Consumer Prices) level will grow to three percent. But the European Commission could consider it acceptable for an economy like Slovakia’s that is playing catch-up with more developed countries, Valachyová said.

GDP growth will drop

Valachyová estimates that Slovakia’s GDP growth stood at nine percent last year.

“It was balanced and slowed by foreign exports and domestic demand,” Valachyová said.

Car producers and the technology industry will not likely boost their production as much in 2008 as they did in 2007, which should slow down GDP growth to 7.2 percent, Valachyová said.

Valachy expects GDP growth to slow from nine percent in 2007 to 7.5 percent in 2008.

“Last year, the growth was a balanced combination of domestic and foreign demand, but in 2008 household consumption and investments should slow the growth,” he said.

Samsung will launch its production of LCD monitors in 2008. Combined with the launch of Sony production, that will have the biggest effect on economic statistics, Valachy said.

Most investments into Slovakia will continue to be in the automotive and electro-technical industries this year, analysts predict. More small companies might come to the country as suppliers to large producers, Gábriš said, but the massive influx of direct foreign investments into Slovakia is over.

“The influx of foreign investments is estimated to be approximately the same as last year (around $2.3 billion),” Valachyová said.

Most investments are expected to head to industrial production, trade, the financial sector and real estate, she said.

If Slovakia joins the eurozone, it might also inspire smaller businesses to come to Slovakia, Valachy added.

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