Monday, May 25, 2009

Higher Deficits Don't Help Much

A recent study of the National Bank of Slovakia (NBS) finds fiscal stimuli relatively ineffective.

"An increase of deficit by one percentage point of GDP permanently would increase GDP growth only in the short-term - by 0.4% in the first year, and 0.2% in the following periods. After six quarters, the GDP dynamic would return to its original level. The major effect of such permanent deficit increase would be lasting increase in real interest rates."

The paper by Michal Benčík can be found at the NBS's website (in Slovak).

Friday, May 22, 2009

V4 Currencies: SKK Gone Strong, PLN and HUF Down

This is a graph depicting the purchasing power of Visegrád Four currencies vis-à-vis Euro since November 2005, when Slovak Koruna entered the ERM II system. The figure shows that the Slovak currency has been fixed to Euro at the time when all V4 currencies registered their several-year highs (summer 2008). After criris-related depreciation of CZK, PLN and HUF, this strong conversion rate made Slovakia relatively more expensive to its neighbors, which hampers exports but tames inflation. More information can be found in TREND Analyses' macropresentation.

Friday, May 15, 2009

1Q 2009: Economies Shrank Considerably

Country 1Q real y/y GDP growth NSA / SA
Czech Republic -3.2% / -3.4%
Hungary -6.4% / -4.7%
Poland n.a.* / n.a.* (seen at 1.0-1.3% by MinFin, 1.0% by Bloomberg)
Slovakia -5.4% / -6.0%

NSA - non-seasonally adjusted, SA - seasonally adjusted
* - will be published on May 29

Tuesday, May 12, 2009

5 Years of Central Europe in the EU

The European Commission published a study summarizing the economic effects of the historic 2004 EU enlargement. The main findings say that:
  • the accession process has contributed to significantly improve living standards in the new Member States, [...]
  • rapid trade integration has fostered a more efficient division of labor and strengthened competitiveness in the EU
  • investments from old Member States have been a key driver of economic transformation in the new Member States
  • new investment opportunities created by enlargement helped enterprises in the old Member States to strengthen their global competitiveness [...]
  • workers in the new Member States have profited from improved employment opportunities at home and abroad, [...]
  • in old Member States, concerns raised about massive labor migration prior to enlargement have not materialized
During the five years, Central Europe has proceeded to gain freedom in labor movement, typical for full EU membership. Restrictions to free movement of labor now remain only in Germany and Austria. The countries acceded to the Schengen area of free borders and won visa waiver for traveling to the United States. In addition, Slovakia joined the Eurozone in January this year.
Local economies experienced a swift growth in 2004-8. Regional average GDP per capita increased from 61.5% of the EU average in 2004 to 67.7% four years later (arithmetic average of V4 countries). Population in V4 stayed stagnant - at 63.9-64.0 million. The number of inhabitants grew noticebly only in the Czech Republic (from 10.2 to current 10.5 million). The EU27's total population is expected to reach 500 million sometime later this year.

Sunday, May 10, 2009

Bratislava Public Transportation in Three Countries

From September on, Bratislava system of public transportation will span three countries. Apart from Slovakia, local buses operate a line to Austrian town of Hainburg an der Donau and a border village Wolfsthal. Later this year, the EU funds will pay for most of the costs of another line to Hunagrian village of Rajka, where many Slovaks moved during the last year or two. This development owes to the Schengen system of free movement across most of EU borders. Apart from Bratislava, only Swiss Basel public transportation is known to the author to service two other countries (France and Germany) apart from its homeland.