BUSINESS IN SHORT

Foreign investment expected to shrink

p>THE INFLUX of foreign direct investment (FDI), which in the past has created favourable conditions for the growth of Slovakia's economic potential, will significantly decrease in 2009. The volume of FDI flowing to Slovakia is expected to drop from USD2.2 billion last year to around USD800 million this year, a decrease of more than 63 percent.

p>THE INFLUX of foreign direct investment (FDI), which in the past has created favourable conditions for the growth of Slovakia's economic potential, will significantly decrease in 2009. The volume of FDI flowing to Slovakia is expected to drop from USD2.2 billion last year to around USD800 million this year, a decrease of more than 63 percent.

This estimate comes from the National Programme of Reforms of the Slovak Republic for the years of 2008 to 2010, which was submitted for interdepartmental review by Deputy Prime Minister for Knowledge-Based Society, European Affairs, Human Rights and Minorities Dušan Čaplovič, the SITA newswire reported.

The reason behind this significant drop in investments is the increased aversion of investors to risk caused by the crisis and shortage of liquidity, which caused a general decline of capital flows to central and eastern Europe.

The Slovak Investment and Trade Development Agency registered 136 investment projects in the first eight months 2009, which is five more than in 2008, but the data on the volume of completed projects is not yet available, Hospodárske Noviny (HN) daily reported.

Lower foreign investment will bring about a slump in Slovakia’s economic growth in the coming years. After a period of high growth, when the real GDP was growing at a faster rate than the forecasted product, the production gap will go into negative by 3.5 percent. However, after this year’s contraction, the Slovak economy should see its growth rate to positively pick up in the following years. The Finance Ministry forecasts a 6.2 percent drop in GDP in 2009. In the coming years, the situation should gradually improve. Next year, Slovakia should post 1.1 percent GDP growth 3.4 percent in 2011 and 4.8 percent in 2012.

Slovakia’s neighbours, the Czech Republic and Poland, face similar problems, HN reported.


Analysts believe that the crisis is behind the declining interest among foreign investors, who prefer to invest in countries which have managed to sustain their economic growth, such as China and India.


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