Despite the problems, Slovakia has experienced some considerable advance in the main economic indicators, during the period of 1993-2003. (www.sario.sk) After a decline in GDP by 23% during the federation with Czech Republic, GDP grew annually by an average of 5. 9% throughout the 1994-1997, 4. 1 in 1998 and slower growth average of 2% during 1999-2001. (www.sario.sk) Unemployment, which had reached two peaks levels, the first one during 1994-1995 about 14. 5%, declined as a result of fast economic activity and fiscal spending, and between 1997-98 had stabilized at a level of 12% of the labor force. (www.sario.sk) The second peak remains even to this day starting in 1999 about 15. 6% and during 2000-2002 around 18%.(www.sario.sk) Inflation dropped from 23% in 1993 to below 10% in 1995 and to about 6% during 1996-1998, peaked in period of 1999-2000 average 11%. 3% in 2001 and in 2002 reached the historic minimum of 3. 3 %.( www.sario.sk) A brief description of what happened in numbers was made as a preparation to detailed examination. Why such a sharp falls and grows occurred, is a question that has to be further investigated from primarily political, economical, and social perspective.
Firstly the development of inflation in Slovakia during 1993-2002 will be discussed. As the former union dissolved, the Czechoslovak Monetary Union was breaking up as well and the Inflation has never been a big problem. In 1993, the inflation reached one of its two peaks and has gone up to almost 23. 3%. This was mainly caused by a taxation measure, where Slovakia had to make a transformation from a turnover tax to VAT. The regime of internal convertibility, a fixed exchange rate with limited fluctuation and devaluation of Slovak crown were some of the main factors driving inflation up in 1993. In addition, tax reform, administrative devaluation, indirect taxes, agricultural production, and core inflation, which had increased because of several applied measures (tax reform, devaluation) and arrived at the uppermost values almost 10%, helped to increase the inflation rate as well. Plus the 10% core inflation can be characterize as with soaring autonomous component of inflation, high inertia, exposed to high inflatory and dissimulator impulses meaning greater instability. The regime of internal convertibility ended in 1995, when current account convertibility was successfully applied within the system. 4% in 1994, and 9. 9 in 1995. (www.sario.sk) National Bank of Slovakia handled to stabilize the inflation development, and following the declaration of current account convertibility, to lower its autonomous component. The releasing of the exchange rate regime (and supplementary aspects) appeared to have pressed up inflation instability. In the whole, the inflation progression on the other hand contained lesser height of core inflation, which had dropped 6 in 1994. (www.sario.sk) The overall period has been underlined by a soaring autonomous component, and high sluggishness. For the moment, the remaining instability of the inflation process has been, even if ignoring constant deregulation, moderately high. Although the exchange rate regime remained fixed until 1998, during the period of (1995-1998), the period when no major administrative decision with an impact on prices was put into practice (deregulation was virtually stopped) and core inflation stood at relatively low level. The instability band for the exchange rate movements was prolonged, having inflation rate at 5, 8% in 1996, 6, 1 in 1997, and 6, 7 in 1998.(www.sario.sk) but due to a deepening foreign trade deficit, which happened because of Meciar’s massive government spending, devaluation pressures started to build up until it broke out in December 1998. The whole economy however prosperous by numbers was actually a ticking bomb. The period of 1998 is marked by a lower level of the autonomous component of inflation and declining instability of the inflation process. However, have some negative factors as quite high inertia, which may threaten the inflation process and, particularly, further disinflation activities. There were also some pressures increasing the inflation as adjustment to change indirect taxes, deregulation, import surcharge (7%) and especially lowering VAT’s (value added tax) rates in 1999. In 1998, beyond a regime of supervised floating rate has been introduced in order to decrease the core inflation, which was partially successful, except the end of 1999, when actions that were a part of the stabilization package were transformed into core inflation. Inflation was stabilizing at present; core inflation is descending when compared to the history of independent Slovakia. In 1998 the inflation was relatively low 6, 7%, but due to accumulated budged deficit and devaluation pressures in 1999, inflation got up to 10, 6%.(www.sario.sk) Gradually increasing and peaking in 2000 about 12, 0% and due to stabilization package, it has gone down to 7, 3% in 2001 and record inflation in 2002 about 3, 3% as a result of tight monetary policy.(www.sario.sk) NBS effectively conducted disinflation policy making LR (a value that the core inflation would reach if not affected by other internal of external elements) to drop form 7. 5% to 4. 9%. The whole process had high autonomous component, high inertia, and volatility slightly changed. There are 3 factors that will take part in inflation process in future and with which the NBS will have to deal:
2nd the carrying out the deregulation
3rd the price shock of other factors
There are several factors influencing inflation. “The labor market state and wage bargaining process, capacity development and demand pressures, competition and competitiveness, exchange rate development, uncertainty involved in decision making, dual inflation. Besides real economic causes, there is also a psychological aspect to the level and inertia of the inflation process – which relates to impacts on inflationary expectations and the credibility of the central bank. As a result of the formation of long term expectations and the adoption of long term decisions, these are likely to become embedded in real economic processes. This could endanger the disinflation process. (www. nbs. sk/157. pdf) The future plan of Slovakia is to bring the rate of inflation close to that in the European Union (EU) countries, but there is a concern that the transition processes may push inflation up to higher levels to about 9% in 2003 and 2004.
(www.sario.sk)
Another macroeconomic indicator is Gross domestic Product. In 1992, Slovakia lost about 7% of financial help, it has received form the federal budget.(), which helped to decrease Slovak GDP. The development of GDP was in the period of 1990-1993 negative and lost 23% of the pre-communist period value (as mentioned in the introduction). 9%, which was very good number in spite of being in recession. Growth of 2%, in 1996 6. 7%, and in 1997 6. 7% the highest in history. Because of investments, which were built mainly form foreign loans. Also, high industrial production driven by vibrant exports and high consumer demand was the motor of high economic growth. Nevertheless, the most important spur of growth was the government’s infrastructure investment program, focusing on building new highways, modernizing power plants and development of new housing. An example of such an investment was the highway construction. Additionally, more domestic consumer confidence and consumption, exports contributed to GDP’s growth. Although fiscal spending might be good just on the short them basis, such a growth was unsustainable in the long term. 1% in 1998. (www.sario.sk) At the end of 98, the tendency of high economic growth drawn back by an apparent slowdown. This was mainly reflected in 1999 and GDP went down to 1. 9%, the lowest growth since the establishment of Slovak republic. (www.sario.sk) The draw back of the expansion was connected with an elementary and essential upgrading of the GDP’s structure, and due to fall of domestic demand. “3 %”.( www.slovakia.org) There was also a deceleration in private consumption growth from 5. 3% to 0. 1 %. 1 %.( www.nbs.sk) The down turn effects of weak domestic developments in GDP growth were subjected to compensation by the payment from net exports. When the growth of real exports reached 3. 6%, the sharp contraction of domestic demand in 1999 resulted in a decline of real imports by 6. 1 %.( www.slovakia.org) 2% in 2000, with a contraction of private and public consumption. (www.sario.sk) Economic growth was pushed up by strong net exports. 5% growth the quarter earlier. (www.sario.sk) It was very positive and the growth in the fourth quarter emerged from a quicker rise in domestic demand and that this rise goes through industrial production and the construction output. A main surprise is that the contribution of net exports remains very strong. In 1999 (1. 9% growth), the gross domestic product was corrected in a necessary way accompanied by an “18. ” (www.Government.gov.sk). 2 %( as mentioned). (www.sario.sk) Slovakia was still recovering from the period of Meciar’s development of economy. 2 percent in 2001 and did reach around 4 percent in 2002.(www.sario.sk) Supported by increased profitability and enterprise restructuring, fixed investment has grown mainly sturdily and optimistic private consumption has been underpinned by rising real wages and employment, as well as expansionary fiscal policy. GDP is expected to grow by 4. 1% in 2003 due to stronger investment, optimistic mood about joining the European Union and NATO, and most important political stability guarantee performing necessary economic and structural reforms.
(www.sario.sk)
Slovakia had always problem with unemployment as the majority of Post communist countries of central and Eastern Europe. During the period of 1990-1993 Slovak unemployment grew due to lesser military production but the main cause was hidden unemployment or over-employment, artificially kept by the communist regime. Since 1993 the number of unemployed people has increased significantly to about 12.2 %.( www.sario.sk) Several factors caused the unemployment to skyrocket. Slovakia lost its exports markets within post communist countries and this lead to impossibility to create jobs, especially in agriculture and in production of weapon and military equipment (heavy industry) . In 1989 around 360 thousand people were employed in agriculture, 11 years later there were only 80 thousand.(www.essay.sk) The majority ended up as unemployed, and people with low education and little skills were and are the most affected group. The first unemployment peak culminated in 1994 at the percentage of 13. 7% (366. 200 people) of labor force. (www.sario.sk) 1994 was one of the worst contemporary years, due to difficult transition process, and also from the perspective of rate of registered unemployment. Despite relatively high GDP growth in (1995-1998) the rate of registered unemployment only slightly decreased as a result of over employment during communism. In this circumstance it is interesting to see the development in employment in relation with 1995, when growth the total Slovak employment increased just by 2. 2%. However, on the other hand the rate of registered unemployment slightly decreased only by 0. 6% in 1995 when the unemployment rate within Slovak economy was 13. 1 %.( www.sario.sk) The first sight of lower rate was in 1995 and it was gradually decreasing to 11. The 1996 rate was the lowest in the Slovak independent history. 8% due to massive government spending on dept from foreign loans, especially on public works as highways, employing the people, who had a lower standard of education and were employed in just seasonal (temporary) job. Slovak unemployment has a structural character because of job opportunities gap between the regions. 5% due a substantial deceleration in the growth of GDP.(www.sario.sk) Because of following causes, lasting disregard for accumulated problems, tight monetary policy pushing inflation down, and package of reforms in order to restore competitive ability of the Slovak economy. 2% such a sharp increase was because of continuing government's austerity package dealing with the structural problems like huge ineffective enterprises, banking sector with non-paid loans. (www.sario.sk) 6 still growing but improving with the government reforms. (www.sario.sk) However, in 2001 the unemployment rate was still growing despite healthier economic situation at 19. 2%. Since 2001 unemployment has been culminating due to seasonal employment in farming, tourism, and construction.(www.sario.sk) The macroeconomic indicator in 2002 is not completely finished but the rate was about 18. 6%, which shows a positive trend in declining the unemployment because of restructuralization reforms and flow of foreign capital investment employing Slovak labor force. (www.sario.sk) Also, Slovak employed force did increase its productivity about 32% resulting in GDP growth and unemployment rate remaining the same. So far in 2003 the unemployment rate reached the lowest levels since 1999 and therefore Slovakia is heading into brighter future. The predictions are optimistic and the rate is supposed to have a declining trend in next 5 years.
(www.sario.sk)
Inflation, GDP, and Unemployment are the most important indicators of economic development. Not only are they indicators they serve as name for an economic phenomenon. Each of them is affecting each other and each of them affecting the whole Slovak economy. They provide us with useful information about countries economic state, whether it is a rich county, poor, or if it is worth of investing the money. Showing our economic progress, reflecting our economic gaps. The entire economy would be vague and insufficient lacking flexibility. They are truly influencing Slovak economy. If we have high GDP compared to the US it would influence our lives in the most positive way. Also, Inflation and Unemployment are mostly economic problems we need to deal with. They might as well influence our economy depending on their percentage. Slovakia has been largely influenced by macroeconomic phenomenon called inflation, GDP, and unemployment. Slovakia is now continuing the process of reforms but majority is already applied. It is also heading towards membership in the European Union. Political stability has been achieved. GDP is expected to grow by 4. 1% in 2003 (the highest GDP growth between V4 countries) due to foreign direct investment and membership in NATO, which will hopefully create jobs pushing unemployment down. Inflation if NBS will not reduce the autonomous component of inflation or inflationary stimuli originated in administrative decision, and if there will be an external price shocks of significant size the inflation will increase. NBS will have to lower the inertia of the inflation process. This strategy might be good, since some major deregulatory steps are still ahead of us and the bang of exchange rate and price shocks caused by the external environment may prove to be quite significant. Otherwise Inflation is expected to rise since Slovakia is joining the EU to 9. 1% and then gradually declining in years to come. Unemployment is expected to be reduced, thanks to foreign investment.
References
Economic and Trade information (Thursday, 07 November 2002). [WWW document]. URL <http://www.dfat.gov.au/geo/slovakia> [22 December 2002]
Macroeconomic Indicators of the Slovak republic (January, 22 2002). [WWW document]. URL <[21 January 2003]
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Slovak economic analysis (22 June 2002) [WWW document] URL <> [29 July 2002]
Slovak Republic 2002 IMF Article IV Consultation Mission Preliminary Conclusions, (May 22, 2002) [WWW document] URL <> [November 6 2001]
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SLOVAKIA TOWARDS WESTERN EUROPE (2002). [WWW document] URL <> (2002)
Macroeconomic Information (January 2001) [WWW document] URL <http://www.sario.sk/showdoc.do?docid=61> [2002]
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<> [2002]
Unemployment in Slovakia (2001) [WWW document] URL
< > [2002]
