Relative high inflation …. But closer to the Euro Area average
Slovak Republic - Consumer Price Inflation
Percent
Annual percentage change in the consumer price index
18.0
18.0
16.0
16.0
14.0
14.0
12.0
12.0
10.0
10.0
8.0
8.0
6.0
6.0
4.0
4.0
2.0
2.0
0.0
0.0
99
00
01
Slovak Republic
02
03
04
05
06
07
08
Euro Zone
Source: Reuters EcoWin
Interest rates have had to converge ahead of joining the single currency
Official Policy Interest Rates
per cent
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
%
9
0
0
01
02
Slovak Republic
03
04
05
06
07
08
Eurozone
Source: Reuters EcoWin
Slovakia is the poorest member of the Euro Area measured by per capita
incomes – just 71% of the European Union average
Relative Living Standards - Slovakia and Euro Area
EU27=100
GDP per Capita, purchasing power standard
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
40
40
95
96
Eurozone
97
98
99
00
01
02
03
04
05
06
07
08
Slovak Republic
Source: Reuters EcoWin
Economic growth has been strong - > 5% since 2002 – but now the economy
is being affected by a steep decline in car exports and industrial production
Economic Growth in Slovakia
Annual percentage change at constant prices
25
25
Percent
Industrial production
20
20
15
15
10
10
5
5
Real GDP
0
0
-5
-5
-10
-10
-15
-15
Q1
Q3 Q1 Q3 Q1 Q3
99
00
01
Industry [ar 4 quarters]
Q1
Q3 Q1 Q3 Q1 Q3
02
03
04
Whole economy [ar 4 quarters]
Q1
Q3
05
Q1
Q3
06
Q1
Q3
07
Q1
08
Source: Reuters EcoWin
Fifteen has become sixteen. Slovakia joined the Euro Area on January 1st dropping the national currency, the koruna, 16 years after the former
Czechoslovak federation split amicably in 1993 and switching to the Euro at
an agreed exchange rate of 30.126 korunas per euro.
Many economists regard this change-over exchange rate as favourable to the
Slovakians - the government has wanted to enter at a relatively high level to
provide a boost to the spending power of Slovakians in European markets
and as a discipline against a return of high inflation.
The country has a population of 5.4 million and its £100bn annual GDP
barely registers compared to that of Germany, France, Italy or Spain Slovakia is the first central European country to achieve membership of the
single currency and it is also the poorest nation inside the currency union
with a per capita income of only 70 per cent of the European Union average.
For Slovakia one of the major reasons for joining the Euro is to bring about
greater exchange rate stability - the country is the 3rd largest car
manufacturer in central Europe and has introduced many labour market and
fiscal reforms designed to make the economy more attractive to inflows of
foreign direct investment.
Slovakia is the 4th country of the ten that joined the EU in May 2004 to have
taken the step towards deeper economic integration. Slovenia,
Malta and Cyprus are already members of the Euro Area. Poland and
Hungary are considering 2012 as a possible entry date and the Czech
Republic (long regarded as a well placed country to take the leap) is now
having second thoughts.
In 2005, prior to joining the Euro Slovakia entered the semi-fixed exchange
rate mechanism known as ERM-2 and since then there have been two
revaluations of the crown's parity rate within the pre-euro currency grid. The
last one came in the early summer of 2008 when the Slovakian central bank
revalued the krona (increasing its value against the Euro) in a bid to reduce
inflationary pressures and keep the economy in line with the inflation rate of
the Euro Area.
Slovakia embraces the euro
http://news.bbc.co.uk/1/hi/business/7785225.stm
Reuters: Slovaks latch on to euro anchor in economic storm
http://uk.reuters.com/article/marketsNewsUS/idUKLU10520920081231
The Times: Slovakia adopts the euro on January 1
http://business.timesonline.co.uk/tol/business/economics/article5414398.ece