Updated convergence programme of Slovakia, 2007-2010 - Main contents

EN

Official Journal of the European Union

C 49/44

On 12 February 2008, the Council examined the updated convergence programme of Slovakia, which covers the period 2007 to 2010.

Slovakia is currently experiencing a period of strong growth induced by wide-range structural reforms introduced in previous years combined with substantial inflows of FDI, especially into the manufacturing sector. Although consequential to growth employment picked up as well and the unemployment rate fell substantially, certain segments of the population concentrated in eastern regions do not seem to take part in this economic expansion.

Apart from constituting a drag on public finances and a social problem, the low employability of certain segments of the labour force limits the country's potential output growth and thus hampers the catching-up process. This unevenness in the distribution of economic activity across population groups and regions would call for an increase in the quality of public education and some reallocation of government expenditure to education, R&D and innovation and infrastructure development. Following a predominantly restrictive budgetary policy in previous years, the fiscal stance turned expansionary in 2006, while monetary conditions tightened on the back of increased policy rates and continued exchange rate appreciation which however, as testified by the strong growth in exports and falling current account deficit, does not seem to have affected external competitiveness of the Slovak economy. As a Member State with a derogation and an ERMII participant Slovakia should gear its macroeconomic and structural policies towards achieving sustainable convergence. Although inflation has decelerated markedly in 2007, it is expected to pick up again on the back of rising food and energy prices, strong growth, a tightening labour market and a fading effect of the strong exchange rate appreciation in 2006-2007. In order to meet the inflation targets set out in the programme — which assumes euro area membership from 2009 — and to contain possible inflationary pressures after the disinflationary effect from past substantial exchange rate appreciation fades out, further structural reforms are necessary and the government should stand ready to adopt a tighter fiscal stance than that envisaged in the programme.

The macroeconomic scenario underlying the programme envisages that real GDP growth will drop from 8,8 % in 2007 to 5,0 % in 2010. Assessed against currently available information (2), this scenario appears to be based on plausible growth assumptions until 2009 and cautious ones for 2010, as the exceptional export performance recorded in 2007 induced by the launch of new production capacities in the manufacturing sector is not expected to be repeated in the coming years. The programme's projections for inflation appear to be on the low side as they are based on more favourable external assumptions than the Commission services' autumn 2007 forecast and on a different assumption on the fading out of the effect of past exchange rate appreciation.

For 2007, the general government deficit is estimated at 2,7 % of GDP in the Commission services' autumn 2007 forecast, against a target of 2,9 % of GDP...