Financial and economic situation in SLOVAKIA

University of Economics in KatowiceMária Čechová

Slovakia at glance

Surface area: 49 035 km2 Population: 5 432 931 (1st January 2016)

Capital: Bratislava Independance: 1 January 1993 – Slovak Republic(before as a part of Czechoslovakia)

Government: Parliamentary democracyPresident: Andrej KiskaPrime Minister: Róbert Fico

Where we are: Member of the EU,

NATO, OECD, WTO, Schengen Area

In the heart of EuropeBordering to : Poland,

Czech Republic, Austria, Hungary, Ukraine

Important facts . . .

From centrally planned economy – to FREE MARKET economy (after dissolution of the Czechoslovak Republic)

Long process of transformation =transformation to integrate successfully into the new globalised economy (however problem was heavily industrial past, with a poor structure - heavy industry, machinery and armament industry, chemical industry) but after „shock“ economic reforms (taxation,

labour, pension,...) and mass privatization = Slovakia became country with big potential and leader among V4

Slovak economy

is ...

small economy (the GDP value of Slovakia represents 0.16% of the world economy, 76.521 mld. €)

very open economy (the combined export and import)

free market economy (around 90% of the GDP is created in the private sector)

stronghold of automotive industry (VW, Kia, Peugeot; 183 cars / 1000 citizens)

Slovakia in EU

Joined the European Union: 1 May 2004

EURO € Member of Eurozone: since 1 January 2009

(formerly Slovak koruna SKK)

Macroeconomic Overview

GDP growth

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

% GDP 3.3 4.7 5.4 5.2 6.5 8.3 10.7 5.4 -5.3 4.8 2.7 1.6 1.4 2.4

In 2007, the highest GDP growth among the members of OECD and the EU (record in Q4: level of 14.3%)

In 2009 dramatic decline due to global economic crisis

2,7 in 2015

Predictions: GDP growth of 2.9% in 2016, followed by 3.3% in 2017.

No. 1 within OECD and EU

Uneployment 11 %

Oct 2015

19.79 % in 2001

7.36 %

Minimum wage in 2016: 405 €Average wage in 2016: 902 €

Inflation

-0,3%2015

Prediction for 2016 : 0,7%

Indicator Units 2010 2011 2012 2013 2014 2015 2016

Revenues mld. EUR 10,65 13,77 12,57 12,65 12,14 14,19 14,28

Expenditures mld. EUR 15,58 18,1 16,42 14,97 15,59 16,63 16,25

Balance of budget

mld. EUR -4,93 -4,33 -3,85 -2,32 -3,45 -2,44 -1,97

Budget deficit % of GDP 7,7 5,1 4,4 2,8 2,66 2,52 2,45

Government gross debt

mld. EUR -27 -29,9 -37 -40 -41,3 -43,138 -44,94

Government gross debt to GDP

% of GDP 41,1 43,5 52,1 54,6 53,5 52,8 52,1

Source: http://www.statistics.sk/; http://www.nbs.sk/sk/titulna-stranka; http://www.finance.gov.sk/Interesting view: http://www.rozpoctovarada.sk/rozpocet/2014/vis.html?0000

Government gross debt to GDP

Source: http://www.rozpoctovarada.sk/svk/rozpocet/200/

Trade - Export

45th largest export economy

Main factor behind Slovakia´s robust growth

In the last years – more than doubled

units 2010 2011 2012 2013 2014 2015

Export mld. EUR 48,3 56,4 62,8 64,4 67,62 71

The top exports of Slovakia:Cars, video displays, vehicle parts, refined petroleum, vehicle bodies, ...The top export destinations:Germany, the Czech Republic, Poland, Hungary, Austria

Top companies for export:VW Slovakia (cars)Kia Motors (cars)Samsung Electronics (LCD TVs and monitors)

Slovnaft (fuels)PSA Peugeot Citroen (cars)Foxconn (LCD TVs)

Trade - Import

Units 2010 2011 2012 2013 2014 2015Import mld. EUR 47,5 54 59,2 60,1 63,11 66,26

• 37th largest importer in the worldThe top import origins of Slovakia:• Germany, the Czech Republic, Rusia, Other Europe, South

KoreaThe top imports:• Electronic equipment, vehicles, vehicles parts, machines,

engines, oil, plastics, fuels and chemicals

2010 2011 2012 2013 2014 2015Export mld. EUR 48,3 56,4 62,8 64,4 67,62 71Import mld. EUR 47,5 54 59,2 60,1 63,11 66,26

Trade Balance

mld. EUR 0,8 2,4 3,6 4,3 4,151 4,741

Foreign direct

investments (FDI)

Attractiveness for foreign investors: cheap and skilled labour high adaptability of labour force to different culture

mngmt style 19% flat tax rate (2004, nowadays- still attractive taxation) no dividend taxes (0%) strategic location (great export potential) tax holidays to investors political and economic stability (safe investment envi) Euro as the official currency

Successful project by country of origin: USA: US Steel, Dell, Johnson Controls, AT&T, Accenture, AmazonGermany: Siemens, VW, T-SystemsUK: TescoFRA: PSA Peugeot-Citroen, Orange

South Korea: KIA Motors, Samsung, HyundaiChina: LenovoJapan: PanasonicAustria: OMV, Mercedes-Benz

Slovakia - the largest automobile producer per capita in the world

Three biggest investors: VolksWagen

(VW Touareg, Audi Q7, Porsche Cayenne and

recently Škoda Octavia) PSA Peugeot – Citroen

KIA In 2018 production of Jaguar Land Rover

1st place in the World

in 2015183 cars

per 1,000 citizens

more than 1 mil. cars

manufactured in 2015

In 2014: 973,370 cars VW : 394,474KIA: 323,720

Peugeot: 255,176

automotive industry 26 % of

Slovak export

43% of the industrial

production

FINANCIAL SECTOR

Institutions

The Slovak financial sector consists of: commercial banks insurance companies securities firms investment fundspension funds leasing companies

Banking sector

1

2

3

National Bank of

Slovakia

Independent central bank of SREstablished on 1 January 1993 Since 2004 – part of European System

of Central Banks (ESCB)Since 2009 – part of the Eurosystem

Main task of the NBS

To ensure price stability, in order to support high employment as well as

sustainable and non-inflationary economic growth

Tasks of NBS within Eurosystem

monetary policy foreign exchange operations and reserves issuing euro banknotes and coins payment systems statistics international cooperation mutual cooperation and support among central banks financial stability in the euro area

Rating

Source: www.nbs.sk

Slovak Republic has the highest rating

among V4 countries

Euro in Slovaki

a

Maastricht Criteria for

Euro adoption

Criterion SR: March 2008 Reference value State of

FullfilmentInflation (average (%) 2.2 3.2 Interest rates (%) 4.5 6.5 Public debt (% GDP) 29.4 60.0 Public deficit (% GDP)

2.2 3.0 ER stability ERM II since

Nov. 20052 years in ERM II

The Treaty of Maastricht of European Union, 1992

Source: www.nbs.sk

MISSION COMPLETED

Euro Changeov

er

On 16 April 2003, the Slovak Republic signed the Accession Treaty to the European Union and committed itself to join EMU and to introduce common currency – the euro.

On 28 November 2005, Slovak koruna (crown) entered into exchange rate mechanism ERM II.

On 8 July 2008 the Council of the European Union at the level of finance ministers of Member States of the European Union (ECOFIN) set the conversation rate between the euro and the Slovak koruna at 1 EUR = 30,126 SKK.

On 1 January 2009, „D- Day“ - the euro was introduced in cash and non cash circulation in Slovakia and became legal tender in the Slovak Republic.

1st to 16th of January 2009 – Dual circulation – possibility to paid in crowns and euros, the costs displayed only in euro

30th of June 2009 – End of the exchange of crown coins in the banks

31st of December 2009 – End of compulsory dual display and the end of the exchange of crown banknotes in banks

Euro Changeov

er

Benefits of the Euro adoption

DIRECT (immediate) BENEFITSTransaction and administrative costs savings of financial transaction costs amounting

to 0.3% of GDP the savings on administrative costs (on the

human and capital resources required for the performance of foreign exchange operations) represents 0.06% of GDP

Exchange rate risk elimination and reduction of volatility of the koruna exchage rate against euro

Benefits of the Euro adoption

Price comparability a direct comparability of prices in the domestic

market and within the euro area countries market

the transparency of consumer prices - gives the citizens a clear picture of relations between domestic and foreign prices and it results in increased competition

prices in Slovakia were lower than in the euro area and their evolution after euro adoption was closely tied to the growth of earnings and purchasing power of the Slovak consumers

Decrease of capital costs Increace of effectiveness and competition in financial

markets keeping the real interest rates at low levels or bring it

down in the future

LONG-TERM BENEFITS New FDI (production efficiency – cheap workforce;

increasing market share; diversifcation of risk) Increase in foreign trade (=crucial role of economy;

positive trade balance; larger liberalization of services market within the EU) – export to Europe; import from EU countries

More dynamic economic growth

Benefits of the Euro adoption

Cost of the Euro

adoption

One-off costs Technical and organizational costs of euro

conversion (0.3% of GDP) : IS, changes in relations with employees, contractors, customers, personnel trainng, dual prices display

Specific costs of the banking sector Costs in connection with the task of providing free

conversion of the domestic currency to euro and reduction of the range of activities and revenues of banks

Loss of the independent monetary policy (the value of the loss 0.04% GDP) Limited scope of operation