Central- European Economics Watch

Draxler on the elections' results in CZ, SK

2010-06-24T14:38:00.001+02:00

http://www.praguepost.com/opinion/4809-the-long-and-winding-road.html

Slovenia, Czech Republic, Slovakia

2009-11-09T19:44:00.006+01:00

Twenty years after the fall of the Berlin Wall, Slovenia, the Czech Republic and Slovakia are the three richest countries of the former Eastern Bloc with regard to GDP per person. Yet, their living standars still fall behind their Western-European counterparts'. Whereas Slovenia reaches roughly 62% of the Western-European average, the Czech Republic and Slovakia are only at 41-42%, and the rest of the region lies further down the chart. The Economist reports.

Moving This Blog

2009-08-27T12:42:00.004+02:00

As my employer finally managed to upgrade its website, I will be moving much of the future posts from this blog to www.trendanalyses.sk (all articles are also in English). See, for example, our recent texts (1, 2) on distorted inflation figures published by the Slovak Statistical Office. RSS channel will soon be available for the TREND Analyses' homepage. Occasionally, however, there might be issues, links, graphs etc. that appear only in this blog, so please remain subscribed.

Unemployment Increasing Despite Season

2009-08-19T14:40:00.001+02:00

Despite little smaller GDP decline in the second quarter as well as favorable summer season, registered unemployment in Slovakia continues to grow. In July, it reached 12.1% of labor force, and is expected to grow in the coming months as well. Current unemployment rate increase (4.6 percentage points annually) is the largest ever, and joblessness is now reaching highest levels since 2004. Strained labor market, where supply of labor abundantly exceeds the demand for it, is caused by global economic crisis, which manifests itself particularly in shrunk foreign demand for local exports. Lower production thus requires considerably fewer workers compared to times of economic boom in 2006-7.

In this context, the proposal of trade unions for increasing the statutory minimum wage by 8.1%, when consumer inflation approaches zero, must be regarded as irresponsible. Considerably increasing the minimum wage in times when many companies operate without any profits could endanger thousands more jobs in the economy.

One Central-European Stock Market?

2009-08-16T10:26:00.009+02:00

Corporate finance in Central Europe is dominated by bank lending. However, 94 IPOs on the Warsaw Stock Exchange last year, together with Prague and Ljubljana exchanges being recently acquired by Wiener Börse, point to interesting developments.
For this year, privatization of Warsaw Stock Exchange is planned. This way, the Vienna exchange could theoretically overtake its regional rival and form Europe's eight largest market for shares. Or the acquisition can happen the other way around, with the privatized Polish exchange acquiring Wiener Börse. Nevertheless, for now both exchanges deny the possibility of allowing one to buy the other.
Largest stock exchanges in Europe according to market capitalization are: Euronext, LSE, Spanish exchange, Deutsche Börse and the Swiss exchange.

Capital Bears More of the Crisis Burden than Labor

2009-07-30T11:21:00.005+02:00

Share of corporate operating surplus on gross value added. Share of labor compensation is the complement to 100%. Source: Eurostat.

Fed's Exit Strategy

2009-07-22T11:13:00.014+02:00

Fed's chairman Ben Bernanke published an article in WSJ explaining the central bank's financial exit strategy after it pumped billions into the economy in an attempt to fight the negative effects of the crisis.
The Fed will need "to tighten monetary policy to prevent the emergence of an inflation problem," Bernanke writes. This should be achieved by eliminating large reserve balances of banks. To do that, the Fed could increase its target for federal funds rate, attracting liquidity back into its own hands. Moreover, in case the federal funds rate does not react sufficiently to the rate Fed will pay on deposited reserves, the Reserve or the Treasury could arrange large-scale "reverse repurchase agreements" - that is, issuing their own securities and sterilizing thus gained liquidity.
The timing and pace of such instrument should best foster Fed's objectives of maximum employment and price stability, the chairman concludes.

NYT Coverage on Slovakia

2009-07-05T12:24:00.004+02:00

"Neighbor’s Shadow Still Large in Slovakia". I am not sure the title is really capturing the main issue in the country, but the article provides ample important insights into the happenings in Slovakia.

Top 10 Slovak Companies in 2008

2009-07-01T12:47:00.001+02:00

Rank, Name, Industry, Sales in 2008 (individual)

1. Volkswagen Slovakia, automotive, €5.37 billion
2. Slovnaft, oil refining, €4.03 billion
3. Samsung Electronics, electronics, €3.52 billion
4. U.S. Steel Košice, metallurgy, €2.93 billion
5. SPP, gas distribution, €2.90 billion
6. Kia Motors, automotive, €2.23 billion,
7. Slovenské elektrárne, energy, €1.96 billion
8. PCA Slovakia, automotive, €1.74 billion
9. Sony Slovakia, electronics, €1.40 billion
10. Západoslovenská energetika, energy, €1.11 billion

Source: TREND Top 200. Last year's results can be found in our earlier post.

V4 Wages Suffering from Currencies' Depreciation

2009-06-03T15:53:00.009+02:00

Currency depreciations pulled down the Euro purchasing power of V4 wages in the first quarter of this year, with the exception of Slovakia, which had a fixed exchange rate to Euro de facto from May 28, 2008. For the first time, thus, average gross salary in Slovakia is not the lowest in Central Europe. Note: the 1q09 value for the Czech Republic is an estimate.

Higher Deficits Don't Help Much

2009-05-25T14:43:00.004+02:00

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).

V4 Currencies: SKK Gone Strong, PLN and HUF Down

2009-05-22T14:49:00.014+02:00

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.

1Q 2009: Economies Shrank Considerably

2009-05-15T11:39:00.014+02:00

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

5 Years of Central Europe in the EU

2009-05-12T11:04:00.009+02:00

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.

Bratislava Public Transportation in Three Countries

2009-05-10T18:13:00.011+02:00

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.

Czecho-Slovakia's Revival at the IMF, WB

2009-04-27T11:57:00.009+02:00

The Czech Republic and Slovakia signed an agreement on joint representation at the International Monetary Fund (IMF) and the World Bank. Sixteen years after the two republics peacefully split, the two states will have only one representative in the IMF (a Slovak), and one (a Czech) at the World Bank. After four years, this composition will switch. The agreement aiming at cost saving has been signed by the Czech and Slovak representatives in Washington, D.C. (read ČTK's report)

Falling By How Much?

2009-04-12T11:40:00.021+02:00

Revisions of macroeconomic forecasts bring worse and worse predictions for the V4 economies. The latest prediction of the National Bank of Slovakia expects local GDP to shrink by 2.4%. Last year, Slovak economy expanded by 6.4%.
Hungarian authorities already calculate with a recession of 5.5-6.0% in this most-hit Central-European country (majority of analysts expected 4-5% decline).
An older (February) forecast of the Czech National Bank counts with an economic decline of only 0.3% in the Czech Republic. IMF expects -1.3%.
By the end of March, Polish central bank expected a 1.1% growth for Poland, which would make the country the only economy in the EU to grow. Similar estimate was released by The Economist Intelligence Unit (+0.9%).
A good portrayal of the current state in the local automotive sector, one of the leading and most-hit industries, can be found at businessnewseurope.

The Economist's Portrayal of CEE

2009-03-16T09:20:00.009+01:00

(from The Economist print edition, February 12, 2009)

"A picture worth 163 words

SIR – Given your newspaper’s determination to accompany any article on social or political affairs in eastern Europe with a photograph of the apparently ubiquitous old lady with a shawl wrapped over her head, I was delighted to find that your recent piece on the gas crisis in the region (“Gasping for gas”, January 17th) carried a picture representative of another important demographic group: the dentally challenged villager. My excitement was short-lived, however, as just a week later it was back to the well-wrapped old lady (“To the barricades”, January 24th). One gets the impression from your coverage of elections that every polling station east of the Danube is populated solely by such characters.

To avoid creating any misleading stereotypes, may I suggest that you widen your range of imagery to better represent east Europeans. Roma using horse-drawn carts on main roads, elderly veterans in Soviet-style uniforms and furry hats and vodka-soaked vagrants would broaden the picture.

Daniel Tilles
Cracow, Poland"

Average Wages under Exchange Rate Pressure

2009-03-11T15:58:00.009+01:00

Average monthly wages in Visegrád Four (V4) countries expressed in terms of Euro values suffered from exchange rate devaluation during the last quarter of 2008. Yet, only Polish wages decreased in Euro-terms compared to the previous quarter. Slovakia, a fresh member of the Eurozone, did not experience an exchange rate depreciation thanks to its set conversion rate. The country's average Euro wage has doubled during the last four years. (More information in updated TREND Analyses' macropresentation.)

CEE is not a Monolithic Region

2009-03-09T22:04:00.010+01:00

Say the Czechs in The Prague Post. The article cites loan-to-deposit ratios, which are around 80% in the Czech Republic and Slovakia, but 130% in Romania and as much as 200% in Estonia. In addition, Erste group maintains that the region is less exposed to the credit crisis than the numbers of Bank for International Settlements say (BIS mentions Western exposure of $1.4 trillion).

New Research Papers by Ľuboš Pástor

2009-03-05T15:13:00.008+01:00

Possibly the most prominent Slovak economic scholar, Prof. Ľuboš Pástor from the University of Chicago, is currently working on two projects included in recent NBER working papers. One of them deals with the process of learning in financial markets, and will be soon reviewed for this blog by our colleague František Lipták. The other tries to answer the question of whether stock prices are really less volatile in the long run.

Hungarian Pleas for Aid Went Unheard by the EU

2009-03-04T16:23:00.007+01:00

Slovak cartoonist Martin Šútovec nicely immortalized the occasion in his recent caricature. Hungarian portal Magyar Hírlap took the picture and translated it to Hungarian. The cartoon stars Slovak Prime Minister Robert Fico, famous for stressing the value of solidarity, and Hungarian leader Ferenc Gyurcsány. Here it is:English translation: "Solidarity? Are you nuts?!?"

Source: http://www.magyarhirlap.hu/cikk.php?cikk=161632

Prague the 12th Most Productive Region in the EU

2009-02-19T11:00:00.007+01:00

According to data for 2006 released by Eurostat today, Bratislava region was the nineteenth most productive of all 271 regions in the European Union. Its GDP per inhabitant in purchasing power standards amounted to 149% of the EU average. This has to do with many large companies having headquarters and major facilities in the capital city, such as automotive manufacturer Volkswagen or oil refinery Slovnaft. Czech capital Prague ranked even higher – at place number twelve – and it is the most productive region of whole Central and Eastern Europe. Other regions of Slovakia ranked much lower, since their productivity ranged from only 44% of the EU average in case of Eastern Slovakia to 63% in Western Slovakia. Regional differences in living standards are thus quite pronounced in the country. However, this is the case of many other EU member states as well, such as Italy, Germany, Spain or the UK. The poorest regions of the EU can be found in Romania, Bulgaria and Poland.

Best Economic News and Analyses on Slovakia in English...

2009-02-18T16:25:00.009+01:00

...can be found in TREND Analyses' monthly TREND Monitor.
The product covers:

key macroeconomic indicators with commentary, history and regularly updated prognoses
concise analyses of recent development in selected industries, new investment intentions of foreign and domestic corporations, mergers and acquisitions, industrial statistics, financial results of major players, hot news and events
selected industries - metallurgy, mechanical and electrical engineering, chemical industry, energy sector, foodstuff processing, construction, production of construction materials, financial sector and other corporate news

The latest issue of TREND Monitor can be retrieved for free by sending a request to analyses@trend.sk

Workshop on New Institutional Economics

2009-02-11T23:10:00.007+01:00

Ronald Coase Institute is organizing a workshop devoted to institutional analysis on May 10-15 together with the University of Economics in Bratislava. The deadline for applications is February 16 (Monday). The institute involves three Nobel Prize winners: Ronald H. Coase, Kenneth J. Arrow as well as Douglass C. North.

Germany as the Major Destination for Exports

2009-02-08T11:58:00.017+01:00

Germany is the major trade destination for exports from five CEE countries:

1. Czech Republic - 30.9% of exports (1-11/08)
2. Hungary - 28.4% (2007)
3. Poland - 25.0% (1-11/2008)
4. Slovakia - 20.3% (1-10/2008)
5. Slovenia - 19.8% (1-11/2008)

Since exports-to-GDP ratios in Central and Eastern Europe are very high (roughly from 50 to 100%), a two-percent decline in Germany's economy this year is felt considerably in orders decline in the rest of "Mitteleuropa" as well.

Note: Lithuania's major export market is Latvia. Latvia's statistical office does not provide the necessary data. Estonia's major export partner is Finland. Croatia's major partner is Italy.

Brokered FDI down by Nearly 60% in Slovakia

2009-02-05T11:20:00.006+01:00

Slovak investment agency Sario brokered almost sixty percent less foreign direct investment (FDI) last year compared to 2007. The amount of negotiated investment decreased from €1.28 billion to only €538 million (0.8% of GDP). Official central bank statistics of FDI inflow indicate a similar decline – by almost a third for the first ten months of the last year. However, the central bank data is often revised and contains estimates, which makes the overall numbers less reliable.
The reason for FDI inflow decline is that many companies scaled back their expansion plans due to global financial crisis. Japanese electronics manufacturer Sony, for instance, has been one of those belonging to this group. Other projects have been put on hold by hesitant firms facing uncertain times. Yet, there were a few significant large investments announced. For example, Bratislava-based plant of Volkswagen announced expansion worth €300 million last year.
Sario officials say that 2009 could witness resumption in FDI flows thanks to the Slovak adoption of common currency Euro as of January 1 this year. The agency is currently working on 122 projects bringing potentially more than € 2 billion of capital into the country. Five of the projects exceed € 300 million in value.

Grim Outlook for CEE from Lombard Street Research

2009-01-25T19:52:00.004+01:00

In its daily note of January 16, Lombard Street Reseach writes via its analyst Maya Bhandari:

"The unwinding Eurasian savings glut will dominate 2009 economic outcomes. Emerging Europe faces the heaviest adjustment. The CEE-4 are amongst the biggest "borrow and spend" economies in Europe, with large external financing needs. But they also share the Asian Tigers' dependence on foreign demand for domestic growth, with two nasty twists – many banking systems are directly tied to the global crunch, and scope for policy action, both monetary and fiscal, is restricted."

TREND Watch Monthly on Slovakia's Economy

2009-01-16T14:58:00.003+01:00

Is available at the Ministry of Foreign Affairs' website (in English). Soon with the December issue. Note: Author of this blog is also the author and project manager of the above-mentioned product.

Hagara the New Chief Analyst of ING Slovakia

2009-01-14T17:30:00.009+01:00

Since January 1, the new chief analyst of ING Slovakia is Eduard Hagara, aged 29. Hagara, born in Kežmarok, replaced Ján Tóth, the chairman of the Club of Economic Analysts, after almost ten years in this position. In 2003, Hagara co-authored a paper (in Slovak) on the similarity of demand and supply shocks in European countries with Jarko Fidrmuc. The study was published in Politická ekonomie in 2004. He obtained a degree in economic and financial mathematics from Comenius University in Bratislava, and worked for ING for almost five years. He is a four-time Slovak chess champion. E. Hagara this way joined the ranks of young economists in senior analyst positions in Slovakia, following Vladimír Vaňo (30), who became the chief analyst of Volksbank Slovakia in fall 2007.

Lipták on Sustainable Use of Natural Resources

2009-01-08T12:14:00.010+01:00

An essay of one of our contributors, František Lipták, with which the author participated in the International Year of Planet Earth in Paris. The essay was presented at the National and Regional Economics conference in Herľany, Slovakia, held on October 1-3, 2008.
Abstract:

"In our paper, we analyze issues concerning sustainability of natural resource consumption involving contemporary problems emerging from their increasing scarcity. After brief historical outline, we discuss issue of natural resource use according to various policy approaches dealing with tax policy, externalities, institutions and technological progress."

Working on Paper Bringing More Science to Politics

2008-12-29T10:47:00.003+01:00

Here's an excerpt:

"Whenever a quarrel in the legislative debate or its part can be reduced to solving an empirical question (of factual nature), scientific method is the one to be followed. For example, a tentative debate over an introduction of a protective tariff could use an argument that “cheap imports from abroad cause higher domestic unemployment.” This argument for a tariff is scientifically verifiable within the realm of economic reserach. This way, the counter-arguments such as “cheaper imports leave more resources in domestic wallets, supporting the local economy in creation of new jobs” or “more import puts pressure on local currency to depreciate, which stimulates exports” or “free labor from uncompetitive industries can move to branches with higher value-added, increasing total income” shall be also given a proper consideration. In the end, thus, a policy decision may not depend on economic misinterpretation of the happenings, but rather on the time preference (that is, short-term- or longer-term-orientedness) of the administration in power."

Any comments on the topic are warmly welcome!

Czech GDP/head higher than New Zealand's or South Korea's

2008-12-04T15:14:00.002+01:00

In PPP dollars, according to The Economist (World In 2009).

Average Wages in Visegrád Four Countries

2008-11-10T16:43:00.007+01:00

Note: Bloomberg served as the source of data.

The chart above graphs the development of average monthly wages in V4 countries. Inter-country comparisons are difficult however, mainly due to various definitions of gross wage across the region. Comparing total labor costs or net wages instead might make more sense. Due to higher employer contributions in Slovakia, for exmple, the average gross wage is lower than that in Hungary. When comparing net wages, however, Hungarian salaries have been lower than Slovak ones for the last four quarters.

A Narrowing Gap in Europe

2008-11-08T17:54:00.011+01:00

This is a re-post of my original blog at etrend.sk (in Slovak), which has been visited by more than nine thousand internet users by now. I am attaching the graph from there to CEEW as well.The chart above shows the development of GDP per head relative to the EU average in three major Eurozone economies as well as several CEE countries. The curves incorporate price levels in various countries through purchasing parity standards (PPS). Thickness of a curve represents roughly the size of a country's population.
One can observe a significant downward movement in case of Italy - by about 20 perc. points within fifteen years. "A lost decade" is currently being felt in Hungary, where GDP per person compared to the EU average is stagnating. Other countries of the region however experience a considerable convergence towards the income levels of the EU average. Slovenia, one of the most succesful countries, will most probably in the medium term overtake its neighbor Italy in GDP per person. This would be the first case of a former Eastern Bloc country to reach higher incomes than a major Western European power.

Top 10 Czech Companies

2008-08-25T11:36:00.007+02:00

According to sales in 2007:

1. Škoda Auto, automotive, € 8.00 billion
2. ČEZ, energy, € 6.29 billion
3. Foxconn, engineering, € 3.23 billion
4. Unipetrol, oil transmission, € 3.20 billion
5. Agrofert, foodstuff & retail, € 3.00 billion
6. RWE Transgas, gas transmission, € 2.83 billion
7. Siemens, engineering, € 2.55 billion
8. Telefonica O2, communication, €2.27 billion
9. Moravia Steel, metallurgy retail, € 2.23 billion
10. Toyota Peugeot-Citroen, automotive, € 1.85 billion

Note: RWE Energy is missing in the list, although its should be in the top 5.

Top 5 Exporters:
1. Škoda
2. Foxconn
3. ČEZ
4. Panasonic
5. Unipetrol

Sources:
http://www.feedit.cz/a.asp?a=2002938
http://ekonomika.idnes.cz/skoda-vyvezla-zbozi-za-195-miliard-patri-ji-tak-prvni-misto-mezi-exportery-1le-/ekoakcie.asp?c=A080611_160547_ekoakcie_pin

For top Slovak companies in 2007, visit our earlier post.

Slovak Public Finance Not Consolidating Anymore

2008-08-16T19:37:00.015+02:00

General government deficit in Slovakia should reach 2.2% of GDP this year according to the latest estimate of the Ministry of Finance. Vis-a-vis the 2008 budget, this is a small improvement of 0.1 percentage point. With respect to the last year's result (a 2.2% deficit), however, it is a stagnation in the process of public finance consolidation. The stagnation comes even after the private pension pillar was open for half a year in 2008 and thousands left for the state pay-as-you-go system, bringing their savings into the state Social Insurance Company. According to earlier statements of Prime Minister Robert Fico, this year's public finance deficit should have narrowed to below 2.0% of GDP.

In addition, for the first time in years, the actual collected end-year tax revenues might be smaller than projected. After seven months of the year, state budget revenues of SKK 186.6 billion have been collected, which is only 53.6% of projected end-year total. Last year at the end of July, the number stood at 59.7%, which is slightly more than 7/12 of the total. Cumulatively, as a result, the state budget ended up in a minute deficit of SKK 614 million (€ 20 mil), which is the worst result in four years, despite still booming economy. Last year at this time, the state budget recorded a surplus of almost SKK 4 billion.

Major factor to blame is the collection of VAT, the dominant source of public finance, which is frozen at last year’s levels, even though retail sales grew by an average of 14% in current prices during the first six months of the year. The fiscal trend, representing a negative change from previous years, should theoretically limit the government in its proposals for generous spending policies. As of now, the restricting effect cannot be observed however.

Slovakia with Best Ratings out of V4 Countries

2008-08-05T13:27:00.018+02:00

After Slovakia's membership in the Eurozone as of January next year was approved, and the conversion rate between local currency and Euro was set, rating agencies Fitch and Moody’s raised their ratings of Slovakia’s long-term foreign currency debt. Fitch lifted its rating from “A” to “A+” with stable outlook. “As a member of the euro area, Slovakia will be sheltered from monetary shocks and the risks of a self-fulfilling currency crisis,” justified the upgrade David Heslam, director of Fitch’s sovereign rating team. Out of Visegrád Four countries, only the Czech Republic has A+ rating (see table below). Poland has A- and Hungary BBB+. Moody’s, similarly, increased its rating outlook for Slovakia – from stable to positive. Slovak Republic’s bonds in both foreign and domestic currency have now rating of A1. The rating agency also raised the country’s foreign currency debt and deposit ceilings to 'Aaa', putting Slovakia on par with the Eurozone. The last of the three major world’s rating agencies, S&P, expressed a relative reservedness towards Prime Minister Fico’s plans in social spending and kept its ratings stable.

Sovereign Ratings of V4 Countries (long-term, in foreign currency, with outlook):

------------------Moody's --S&P ---Fitch
Slovakia ----------A1p------Ap----- A+s
Czech Republic-- A1p-------As -----A+s
Poland------------ A2s----- A-p -----A-s
Hungary---------- A2s--- BBB+n --BBB+s

BW: Here Comes Booming Bratislava

2008-07-31T13:46:00.010+02:00

"A hot real estate market in the Slovak capital is pushing its suburbs into Hungary and Austria, and easier cross-border movement is making it possible", starts a Business Week article.

Source to the image: maps.google.com

Top 10 Slovak Companies

2008-07-10T11:50:00.015+02:00

Are not really that Slovak after all :)

Ranked according to sales in 2007:

1. Volkswagen Slovakia, automotive, € 5.73 billion

2. Slovnaft, oil refining, € 3.34 billion

3. Samsung Electronics, electronics, € 3.29 billion

4. U.S. Steel Košice, metallurgy, € 2.87 billion

5. SPP, gas distribution, € 2.17 billion

6. Kia Motors, automotive, € 1.60 billion

7. PCA Slovakia, automotive, € 1.54 billion

8. Slovenské elektrárne, energy production, € 1.38 billion

9. Tesco Stores, retail, € 927 million

10. Sony Slovakia, electronics, € 864 million

Note: Fortune's 500th world's largest corporation (Fluor) had revenues of € 12.19 billion last year.

Top 3 in Value Added:

1. U.S. Steel Košice, metallurgy, v.a. € 1.03 billion

2. Slovenské elektrárne, energy production, v.a. € 822 million

3. SPP, gas distribution, v.a. € 541 million

Top 3 in Employment:

1. Železnice SR, railways, 17 982 employees

2. Slovenská pošta, postal services, 15 849 employees

3. U.S. Steel Košice, metallurgy, 13 342 employees

Source: TREND Top 200

For top CEE companies in 2006, visit our earlier post.

How good will be Slovakia's monetary policy?

2008-07-04T10:00:00.004+02:00

When Slovakia adopts the euro, monetary policy decisions affecting its economy will no longer be taken in Bratislava. Many think that is good news since the European Central Bank is an enormously credible institution that has been performing really well - so well, in fact, that even EU's critics lack facts to criticize it. Vaclav Klaus, the Czech president and a well-know "EU skeptic" wrote this in June: "Ten years have passed since the founding of the European Central Bank ... a major celebration of this anniversary is being planned by ECB and I admit that there is a reason for it."

There is little doubt that ECB's success has a lot to do with its independence but recent developments show that not all are happy with the present arrangements. Clearly, politicians must care about the short-term state of the economy (even at the expense of medium-run price stability) if they seek popularity and reelection. But, for some, it now includes "a more open discussion about the motivations behind interest rate decisions" (Jean-Pierre Jouyet, the European affairs minister of France). Another French official said that Paris only wants "a voice on monetary policy" and José Luis Zapatero, prime minister of Spain, asserted that he expects the ECB to "behave responsibly." No, he didn't mean the was ECB is paying too little attention to rising prices, he merely hinted at the bleak state of the Spanish housing market.

When the financial crises is over (or becomes less severe), one might hope that attempts to undermine ECB's independence will evaporate. Strong euro and higher-than-America's interest rates will hopefully no longer be big, politically attractive issues. Slovak officials now have an opportunity to impress: all they have to do is to look at some of their western colleagues and not repeat their comic behavior.

Where is Romania?

2008-06-30T09:35:00.004+02:00

Countries like Poland, Slovakia and Russia frequently make the headlines. Their growth impresses western analysts and journalists, their domestic events provide for enough (yet not too much) excitement and their names are recognized by most, if not all, spell-checkers and individuals.

But what about Romania? Had there not been high growth? Does it find itself in a "development trap"? Judging by the news coverage, one would never guess that Romania had made enormous advances in recent years. (In fact, I am not sure I have heard the country mentioned since I saw a flood of posters at major European airports in early 2007, announcing/promoting the latest EU enlargement).

And today, my news feed claims that Romania has been "hard hit" by the global financial turmoil. But when I looked up IMF's most recent "consultation with Romania," most of what I saw was praise. The kind that sounds genuine, supportive and substance-based.

Unemployment is falling, growth is well above 5%, fiscal balance is certainly EU-worthy (despite rapidly rising government expenditures) and the growth of external debt appears to have stopped. National Bank of Romania is also praised by the IMF: "Directors welcomed the NBR's commitment to price stability in a challenging environment, and stressed the need to firmly anchor inflation expectations. The NBR has appropriately tightened the monetary stance since mid-2007 ..."

While Romania may not have quite "shined" as much as other emerging markets, at least by the high standards and expectations of the media, the numbers show that it has been successful and is bound to do well in the future. This is a country that should be watched and talked about more - there is clearly much more to it than Dracula-jokes.

Is inflation in Europe too high already?

2008-06-28T08:57:00.005+02:00

Some people are now talking about the possibility of stagflation in Europe, as Germany's inflation estimates have risen to 3.3 percent. Inflation needs to be watched closely, of course, and it is never encouraging when its levels move above the official comfort zone. But, from a historical perspective, when EU countries like Portugal, Spain and Sweden all stay below 4 percent and EU-27 projections are well below 3 percent (2.4), sounding the alarm bell might well be premature.

Just recall Ken Rogoff's speech documenting that "globalization and de-regulation have been powerful forces supporting the political economy of low inflation." There might be more regulation in the coming years and some countries will grow less than had been expected. But how does the situation today look when compared with the 1990s?

Some seem to forget that world inflation was around 30% in 1990-4. Between 2000 and 2007, by contrast, prices around the world rose no more than 3.8% per annum on average. That is, inflation fell EIGHT FOLD. The industrial economies will probably not venture far from the 3% benchmark. Rising prices in the developing world should, by all means, be a source of concern. But the European Union, including Central Europe, seems to be in a reasonably good shape. Even Hungary, in spite of having a bad year, will probably do well in 2009.

Record Koruna Revaluation to Set the Final Conversion Rate

2008-05-29T12:01:00.010+02:00

At the request of Slovak authorities, the central parity between Slovak koruna and Euro within the ERM II system has been moved for the second time, this time by 15% from 35.4424 to 30.1260 SKK/EUR on May 28. The revaluation is the most significant movement of the central rate in the history of the European exchange rate mechanism. In case of Ireland and Greece before 2002, the changes were by three and three and a half percent respectively. The change is a reaction to the positive assessment of the Slovak euro bid by the European Commission from the beginning of May and a significant appreciation of the Koruna exchange rate due to healthy economic fundaments during the last two quarters.

The new exchange rate center will most probably constitute the final exchange rate as Slovakia switches to Euro in January next year, since no country has yet joined the Eurozone with an exchange rate different from its central parity, and another revaluation is highly unlikely.

The Koruna revaluation appeased the bullish market that continued to trade Slovak currency at ever stronger positions in May. Verbal assertions of the Slovak PM Robert Fico as well as NBS governor Ivan Šramko stating that there is a room for koruna appreciation helped to move the exchange rate to new all-time highs. Another driving factor of appreciation was low risk aversion of global investors, which has fallen to ten-month lows according to standard proxies (VIX and global macro-risks indices). From SKK 32.25 for a Euro at the beginning of May, Koruna appreciated to record 30.616 SKK/EUR on May 28, 2008 – shortly before the revaluation, and up to 30.087 SKK/EUR on the following day. This makes Slovak Koruna the most appreciating currency vis-à-vis Euro in the world since 2005. The local currency’s year-on-year strengthening averaged at above six percent in the last three and a half years. Czech Koruna and Polish Zloty appreciated on average by slightly more than five percent each year. Against the dollar, Koruna strengthened to levels below 20 SKK/USD for the first time in history. The record now stands at 19.254 SKK/USD.

In the future, no further significant movements of the exchange rate from the new parity are to be expected, however. We expect the new rate to be confirmed as the final conversion rate by the EcoFin on July 8, since it approximately constitutes already the 2009 equilibrium exchange rate. Worries springing from the record currency appreciation, 11.1% in year-on-year terms, have already spread among exporters, who produce in Korunas but earn in Euros. It is thus reasonable to anticipate that the trade surplus predicted for 2008 will be, as a result, a bit smaller than expected.

The Left and Right: Economic Worldviews Explained

2008-05-14T16:14:00.006+02:00

I consider this such a great piece of text that I am attaching it here as a whole. It comes from Harvard professor Greg Mankiw, who's explaining the differences between the left- and right-leaning economists.

The right sees large deadweight losses associated with taxation and, therefore, is worried about the growth of government as a share in the economy. The left sees smaller elasticities of supply and demand and, therefore, is less worried about the distortionary effect of taxes.

The right sees externalities as an occasional market failure that calls for government intervention, but sees this as relatively rare exception to the general rule that markets lead to efficient allocations. The left sees externalities as more pervasive.

The right sees competition as a pervasive feature of the economy and market power as typically limited both in magnitude and duration. The left sees large corporations with substantial degrees of monopoly power that need to be checked by active antitrust policy.

The right sees people as largely rational, doing the best they can given the constraints they face. The left sees people making systematic errors and believe that it is the government role to protect people from their own mistakes.

The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace.

There is one last issue that divides the right and the left—perhaps the most important one. That concerns the issue of income distribution. Is the market-based distribution of income fair or unfair, and if unfair, what should the government do about it? That is such a big topic that I will devote the entire next lecture to it.

A Great Convergence in Europe

2008-05-01T14:16:00.007+02:00

Source: Eurostat
(2009 values were calculated from predicted GDP growth)

Robert Aumann Coming to Slovakia!

2008-04-11T12:50:00.007+02:00

Young and entusiasthic group of Slovak scholars under the heading of Virtual Scientific Laboratories has managed to organize an unique visit of a unique scholar.

Robert Aumann, father of modern game theory applied in economics, will address an initial lecture of Tatra banka lecture series at the University of Economics in Bratislava on 12th of May 2008.

Participation is possible by invitation. We sincerely believe that one of this blog's editors will attend the event and provide a short summary for our readers.

More info about Mr. Aumann here, short article by Tyler Cowen here, and by the Center for the Study of Rationality here.

So long.

EDIT1: ...for those of you who do not know, Mr. Aumann is a Nobel laureate.

Neighbors

2008-03-05T13:16:00.004+01:00

Sources: Eurostat and ŠÚSR

Real and Price Convergence under a Fixed Exchange Rate Regime

2008-01-22T11:24:00.000+01:00

Nadežda Stanová in the current issue of Biatec (monthly magazine of the National Bank of Slovakia).

Real and Nominal Convergence Go Hand in Hand

2008-01-14T12:12:00.000+01:00

Hence, inflation in a fixed exchange rate regime in New Europe (e.g. in Slovakia after adopting euro) can be expected at levels up to real GDP per capita growth (5-7%).

Forecast

2008-01-11T00:56:00.000+01:00

Recent OECD forecast expects a decline of economic growth in Slovakia to approximately 7 percent in 2009. Among other factors influencing this outlook, a slowdown of EU economies is to be blamed. More comments in Slovak Spectator's article.

More interesting is the economic performance under changed economic conditions after adopting euro. Although some expect the growth to decline as a result due to Maastricht fiscal ceiling, fiscal discipline is definitely not the only factor influencing the expected outcome. Taking into account that currency-switching is a very specific situation, one should not omit the long-term effects of euro on economic growth.

In my humble opinion, policy makers should have at hand a strategy for further development in form of an industrial policy vision. For this, measurements of the allocation efficiency of public funds for FDI stimuli should be considered. That is to say, that FDI in the automotive industry might have already exploited the existing economies of scale opportunities, which means that a further contribution of this sector to economic growth may not be so robust anymore. For a small country, in addition, a fast adjustment in competitiveness seems to be the key priority of economic policy. Without a scientific guidance in economic policy-making, it is hard to follow optimal solutions, unbiased by ideological disputes.

Slovak wages at 685 EUR when entering Eurozone

2008-01-04T15:30:00.000+01:00

Nominal expectations can be as important as real ones for possible euro-related real price changes and resource misallocations. I thus bring numbers for the average monthly gross wage in Slovakia at the break of 2009, when the country expects to convert to euro. The average wage, seasonally adjusted, will be 680-690 eur. The figure is to be used in the context of the Slovak economy only, since comparing gross wages across Central-European economies is rather complicated, as I demonstrated before. The expected conversion rate between koruna and euro used in this calculation is 32.63 SKK/EUR (taken from the survey on assessments of Slovakia meeting the Maastricht criteria.

Historically Lowest Budget Deficit Confirms Slovak Euro Ambitions

2008-01-02T10:35:00.001+01:00

The 2007 state budget ended up in a deficit of 23.5 bn SKK (712 mil EUR) at the end of December. Relative to the Gross Domestic Product (GDP), this constitutes 1.3%, which is a historical low (data available since 1995). The budget was originally planned with a shortfall of 38.4 bn SKK. The narrower-than-planned budget gap was caused by 2007 state revenues being almost four percent higher than those budgeted, thanks to record economic growth, while the actual state spending almost exactly matched the plan. Together with the negative balance of regional administration and social security, which is estimated at 1.1% of GDP in the latest update of the Finance Ministry, the figure means that the general government deficit will most probably lie at 2.4% of GDP. Public finance deficit of this size satisfies the 3.0% of GDP Maastricht convergence criterion necessary for adopting the common currency in January 2009.

How well does real GDP growth predict change in GDP per capita in PPS?

2007-12-31T13:53:00.000+01:00

In one of my previous posts, I predicted that by 2009, Slovakia will overtake Portugal in GDP per capita in PPS. I calculated this from from real GDP growth forecasts of the European Commission (Eurostat) for 2009 and the 2008 forecasts of GDP per capita in PPS. How accurate is however this prediction?

For evaluating this, I graphed above the actual annual changes in GDP per capita in PPS relative to the EU27 average (x-axis; in percentage points) and the values predicted via calculation of real GDP growth (y-axis), using a very small dataset (n=13) of Slovakia between 1996-2008 (Data source: Eurostat1, Eurostat2). The correlation coefficient is 0.9304, the trend line is defined as y = 1.0038x - 0.2169 (R=1 would mean y = 1x + 0). The standard deviation of the actual values from the predictive model is however still too high for a conclusive answer about a minute positive difference between Slovakia and Portugal in 2009.

Central Europe joins Schengen area with no border controls

2007-12-21T12:04:00.000+01:00

Source: BBC

(Curious is the fact that the map views Romania and Bulgaria as non-EU members, or alternativelly as not able to join the Schengen area)

In less than 2 years, Slovakia will overtake Portugal

2007-12-17T11:32:00.000+01:00

Data 1995-2008: Eurostat (2007-8 are forecasts). The 2009 values were calculated from the real GDP growth rate forecasts, again by Eurostat.

Kotian: inflation won't threaten Slovak euro ambitions

2007-12-12T10:40:00.000+01:00

Juraj Kotian, deputy chief economist of Erste Bank AG for Eastern Europe in Vienna speaks for Erste TV.

Slovak Quarterly GDP Growth Revised

2007-11-28T11:10:00.000+01:00

The revision based on a new methodology (chain-linking) did not bring any significant interpretational differences.

Reuters Central European Investment Summit

2007-10-13T10:50:00.000+02:00

I am aware that this notice comes a bit late, but still.
The summit takes place on October 15-17 (Monday to Wednesday) in Vienna, Austria. If you can't attend, check out at least the issues that are going to be discussed.

DEBlog - discussing pension system

2007-10-08T12:47:00.000+02:00

As announced, three Slovak economists have started a discussion about Slovak pension reform. The discussion is in Slovak. However, we might translate some important outputs and hopefully publish them here.

Slovak 2009 Euro Adoption in Doubts

2007-10-01T15:44:00.000+02:00

The planned public finance deficit of 2.94% of GDP this year, which just barely meets the 3.0% Maastricht criterion for euro adoption, might increase by 0.2-0.3 pp as Eurostat suggested including the national highway company and public media into the public finance balance sheet. The Ministry of Finance said these amounts are still manageable in the light of keeping the deficit under 3.0% in 2007, since the state revenues and expenditures after nine months suggest an actual deficit of about 2.7% of GDP by the end of the year. However, health care, railways and public-private partnership (PPP) projects in highway construction remain a potential danger if included into the official public finance numbers. A final say by the Eurostat on the deficit accounting is expected soon. A survey among analysts on the probability of euro adoption reflected the arisen worries and fell by 7 pp to its lowest level since December last year (from 77% in August to 70% in September).

On Convergence Within the EU

2007-09-28T10:51:00.000+02:00

An article by Philippe Maystadt, president of the European Investment Bank, for the Project Syndicate.

Slovak Business Environment Worsens

2007-09-27T10:54:00.000+02:00

A September report of ING Slovakia includes this graph and comment on the PAS business environment index: "The strong anti-reform pre-election rhetoric has not been followed up with the reversal of the previous government's reforms. Facing a possible currency crisis after the elections, the new government recommitted itself to the original euro adoption schedule. However, financial markets had assumed the anti-reform stance would not be met with action and the government would keep the status-quo in reforms.
Nevertheless, as time goes by, the government's policy is taking a negative toll on the business environment. And there is no guarantee that this process will not deteriorate further after 2009 euro entry."

New Statistics on GDP per capita in PPS

2007-09-23T20:22:00.000+02:00

	% of EU-27	Change
	(2007)	since 2003
Austria	129.4	+0.3
Czech Republic	81.5	+7.7
Slovakia	66.6	+11.3
Hungary	65.7	+2.1
Poland	55.1	+6.0

Source: Eurostat: GDP per capita in PPS

Pension Economics Soon to be Spoken @ eTREND.sk

2007-09-18T22:11:00.000+02:00

Juraj Draxler (CEPS Reviser Reseach Fellow), Martin Filko (PhD student at Erasmus University Rotterdam), and Martin Chren (director of F. A. Hayek Foundation Bratislava) will soon commence the Slovak "Economics Forum" with an online debate à la Richard Thaler and Mario Rizzo on the topic of pension economics. Next Monday at the economic weekly TREND's portal.

10 Largest Non-financial CEE Companies

2007-09-14T11:33:00.000+02:00

{Rank, Company Name, Country, Sales in 2006, sector}

1. PKN Orlen, Poland, 13.6 bln. EUR, oil processing
2. MOL, Hungary, 11.4 bln. EUR, oil processing
3. Skoda Auto, Czech Republic, 7.4 bln. EUR, automotive
4. Naftogaz Ukrajiny, Ukraine, 6.1 bln. EUR, energy
5. CEZ, Czech Republic, 5.8 bln. EUR, energy
6. Volkswagen Slovakia, Slovakia, 5.2 bln. EUR, automotive
7. Audi Hungaria, Hungary, 4.9 bln. EUR, automotive
8. Nokia, Hungary, 4.8 bln. EUR, technology
9. Telekomunikacja Polska, 4.8 bln. EUR, telecommunications
10. Polskie Sieci Elektroenergetyczne, 4.0 bln. EUR, energy

Source: Deloitte - Central Europe Top 500

A Small Open Economy

2007-09-05T23:06:00.000+02:00

Slovakia was the 11th most trade-open economy in the world according World Bank's 2005 available data, with exports and imports valued together at 161.7% of the country's GDP. Only Hong Kong, Malaysia and Belgium were both more populous and more economically open. Other more open countries included mini-states such as Luxembourg, Seychelles or Guyana. According to the most recent numbers (1st half of 2007), the country's exports amounted to 89.0% of GDP, imports 89.6% of GDP. The total trade openness was thus 178.6% of GDP.

Slovak Public Finance at the Entry to the Eurozone

2007-09-03T21:49:00.000+02:00

Possessing sound public finances is one of the four Maastricht convergence criteria enshrined in the 1992 Treaty on European Union. By signing their accession treaties, the new member states agreed to meet the Maastricht criteria with derogation. Sound public finance criterion is defined as annual general government deficits of lower than 3% of GDP together with a general government debt lower than 60% of GDP.

The Slovak government’s official target date for entering the Eurozone was set to January 1, 2009, and as such was adopted by the new government led by left-leaning Smer-SD in 2006. The country’s preparedness to enter the monetary union will be assessed by the European Central Bank and the European Commission in spring 2008.

After eight months of 2007, the state’s budget is in black numbers with a surplus of 401.7 million Sk (12 million EUR). Year on year, this is an improvement of 6.1 billion Sk (181 million EUR). On a last twelve months basis, the state budget deficit stayed at -1.7% of GDP. Corporate tax revenues and VAT collection are both showing positive results. Hence, the probability of meeting the 3.0% EMU criterion is regarded as quite high. As a matter of fact, it is estimated at 81% according to a regular survey of economists done by the Institute for Economic and Social Reforms (INEKO).

The 2008 state budget was prepared in August this year by the Ministry of Finance and presented to the cabinet. The deficit should amount to 24.218 billion Sk (721 million EUR; 2.4% of GDP). Medium-term financial framework - the Convergence Program of May 2004 - calculates in addition with a deficit of 1.9% of GDP in 2009. The goal of the program is a structural deficit of 0.9% of GDP by 2010.

Several analysts have expressed the opinion that a record economic growth of the current years allows for a prompter deficit reduction. The public finance is constrained, however, with the costs of a brave pension reform that introduced a second private pillar for pension savings (1.1% of GDP in 2006).

The general government debt of the Slovak Republic amounted to only 30.7% of GDP (503.1 billion Sk; 13.86 billion EUR) in 2006 according to Eurostat, which is a twelve-year low. The number is compatible with the 60% Maastricht requirement, comparable with that of the Czech Republic (30.4%), and considerably lower than that of Hungary (66.0%), Poland (47.8%) or the EU-27 average (61.7%).

What Bubble?

2007-08-28T20:55:00.000+02:00

Image of the day at Bloomberg (growth in Eurozone's M3 since 1978; click for larger view).

Got numbers?

2007-08-22T19:55:00.000+02:00

Kenneth Glenn Dau-Schmidt and Carmen L. Brun elaborated a paper dealing with different popularity of law and economics in Europe and USA. Amongst some of the major differences are common-law system, different peer-review tradition (journals reviewed by students), state-oriented (communitarian) society in Europe, rather rare mobility among academics, judiciary and practitioners, and a few other.

Trying to contribute with a nice informative article, I have discovered an additional cause (and effect as well) of the L&E underestimation in Europe (and Slovakia especially) - THE (inaccessibility of) numbers.

Based on the SLOVSTAT data, percentage of the closed cases have declined by 46,6 points from 1989* to 2006. This massive decline made me think about possible causes. I approached Slovak Ministry of Interior with an obvious question: "What was the number of police officers and police budget from 1989 to 2006?"

The answer, dear reader, is confidential (read "lost for good"), apart from years 2005-2007 (where we can observe 94 policemen and 1,025 million crowns salary costs increase) and if we do not want to end up being interrogated like Minin brothers, waiting ten years more seems to be a good idea.

Or maybe we could just develop some false memories about our crime rates. Whatever!

* I did not want to spare you the phony number from 1989. Communist duty to explain every crime committed made all the magic:) - or did you really believe those 46,6 percents? I understand both:).

TFP gaps in manufaturing: China, India & CEE

2007-08-16T21:27:00.000+02:00

In their recent NBER paper, Chang-Tai Hsieh and Peter J. Klenow tried to quantify the extent of resource misallocation in the manufacturing sectors of China and India. According to the authors, if capital and labour were reallocated to eqalize their marginal products, the Total Factor Productivity would increase by 25-40% in China and 50-60% in India.

What does this mean for CEE manufacturing? If economic policies of these countries continue to apply the traditional approach to foreign investment (subsidies), it is questionable whether the returns on FDI in these countries together with the benefits of fiscal competition for manufacturing firms will continue to be motivating. While already facing a labour shortage, Central Europe has tough manufacturing competitors in China and India.
--
Thanks to František Lipták for this post.

Slovak GDP grew by 9.45% in the last four quarters

2007-08-15T19:07:00.000+02:00

Recent Statistical Office's report of 9.4% growth in GDP for 2Q2007 means that Slovakia has been growing at an average pace of 9.45% in the last 12 months (9.8 & 9.6% in 3&42006, and 9.0% in 1Q2007).
At that speed, with the whole EU growing at about 2.9%, Slovakia caught up in a single year more than 4 percentage points in its performance relative to the European Union's average (from about 60 to about 64% of the EU-25 average in GDP per person in PPS).

Catching up and Falling Behind

2007-08-07T22:57:00.000+02:00

Eurostat launched a new tool allowing one to graph available data into a map. Here's a map of Europe showing the countries' economic performance between 2002-2006 relative to the EU-25 average (click for larger view).

Portugal, Italy and France have fallen behind relative to other EU member states; countries of the 'New Europe', on the contrary, are catching-up quite quickly.

Macroeconomic stability in the Czech Rep. and Slovakia

2007-08-04T21:52:00.000+02:00

Three graphs from my MA thesis.

Draxler on globalization in FT

2007-07-26T16:24:00.000+02:00

http://www.ft.com/cms/s/d7692fa0-3b26-11dc-8f9e-0000779fd2ac.html
Would the author be able to convincingly show how comparative advantages can be 'created'?

Is Hillary inspired by Slovakia?

2007-07-12T01:59:00.000+02:00

In a provocative article, the president of the Cato Institute suggests that a well-known U.S. senator might be a nationalist, in spite of her party membership.

This rings a bell - perhaps it even sheds some light on the structure of the Slovak government, which should be unthinkable in theory but is alive and well in practice.

Is it a good thing that ideological differences seem to be getting smaller? Slovakia has been described as "lab" before and something tells me there will be a lot of evaluating to do after the present administration's term. Patience is required in the meantime.

IHT on Skilled Labor Shortage in Central Europe

2007-07-05T22:50:00.000+02:00

An International Herald Tribune article based on a report by the Vienna Institute for International Economic Studies.

"Slovakia could soon become the world's biggest car producer per capita - if it can find enough skilled workers to assemble the vehicles." [...]

"The problem is particularly acute in the automotive industry in the Czech Republic and Slovakia, but it also affects segments of such high-skill service occupations as health-care personnel, architects, civil engineers and Internet technology experts, he [one of the report's authors] said.
In 2003, the Czech Republic began a program, appropriately called Selecting Qualified Workers From Abroad, which entails offering permanent residence permits to those who have lived and worked in the country for two and a half years. Poland said last month that it was introducing a similar program."

Perhaps a policy inspiration for the Slovak government? (The government recently made the requirements for obtaining citizenship tougher.)

Thanks to Michal Onderčo for this post.

PS: A careful observer might spot a mistake in the target year of euro adoption in Slovakia. It is not 2008, as in the article, but 2009.

Draxler on Globalization

2007-07-05T12:14:00.000+02:00

A very intervention-leaning account by a Slovak CEPS research fellow, but still a nice overview of what is out there in this regard.

Update (21 September 2007): here's the complete report for the Directorate-General.

What are the impediments to growth?

2007-06-29T15:49:00.000+02:00

Slovak daily SME came with an unsurprising answer citing the opinion of the Slovak Chamber of Commerce and Industry.

According to the article (in Slovak), the three biggest problems in the economy are: enforcement of law, education, and export promotion. Of course, courts turned out to be the worst part of it. Therefore, we will look at the numbers there in more detail.

Heritage foundation measures the Index of Economic Freedom, assessing the main areas that affect the business environment. I chose indicators of property rights enforcement and corruption to compare their values in the Czech Republic, Hungary, Poland and Slovakia.

Another indicator would be the World Bank Governance Indicators dataset, compiled into a neat rule of law interactive map.

Looking at the graph, there is not too much progress visible in the last twelve years, comparing Slovakia to its neighbors. However, there is a slight improvement in property rights and corruption absolute terms from 2005 to 2007. Nevertheless, law enforcement really seems to be a "bottleneck" of our economy.

Policy prescription in this regard would be a transparent anti-corruption legislation, dealt with in, for instance, Polinsky, Shavell (1999), and a very profound change in judicial execution of law, dealth with in Kühn (2005).

On Comparing Wages Across Central Europe

2007-06-28T19:22:00.001+02:00

A recent study by the Slovak Ministry of Finance (in Slovak) revealed problems in inter-temporal comparisons of 'gross wages'. The trick lies in the definition of gross wage, which varies over time as social security or other payments are shifted from employer to employee or vice versa. The same problem, with the addition of currency and price level conversions, appears with inter-country comparisons.

For these reasons, comparing total labor costs (or 'super-gross wages'), or just net wages seems to be a much more reasonable solution to assess living standards of the local working populations. Here's the 2006 data for V-4 countries: an average monthly salary of an employee in the economy, first converted into euro according to official 2006 yearly exchange rates, and then adjusted for the respective price levels (of 2004) relative to the European Union average.

	--SGW	----GW	---NW
CZ	1854	1374	1064
HU	1531	1136	750
PL	1634	1356	920
SK	1250	988	768

Note that GW stand for gross wage's purchasing power in euro, SGW for 'super-gross wage' (including employers' social security contributions), NW - net wage. SGW and NW were calculated according to the OECD information on labor tax wedges in 2006.

An informed observer might spot that the purchasing powers of average wages across V-4 countries do not correspond to GDP/head rankings of these countries. Slovakia, for example has higher GDP/capita in PPS than Poland, but lower wages. In order to explain these differences, one ought to look closer at the labor productivity statistics, as well as the local definition of a 'salary' (as opposed to other income).

Baťo reviews Taleb's "The Black Swan" (in Slovak)

2007-06-27T16:10:00.000+02:00

http://ekonomika.etrend.sk/104468/slovensko/cierna-labut
Links to other reviews of this book published in respected English-written periodicals may be found at Nassim Talebs's home page.

Slovakia on the map!

2007-06-26T16:03:00.000+02:00

Three maps for you today, no rocket science, just to think about geo-politics and geo-economics. For better details, click on the maps, or check out the links (especially the fancy interactive one:)).

1. Global Peace Index (source: Opinio Juris)

2. GDP per head - regional figures (source: Regional Policy - EC and The Slovak Europe Blogspot)

3. Doing Business Interactive Map (source: Opinio Juris)

Basically, we are a peaceful country, with one thriving region and pleasant business enviroment. People are complaining all the time, and GDP per capita makes one vigilant, but it is not that bad in the world context either.

A nice one, by Alesina on the EU economy

2007-06-24T13:54:00.002+02:00

http://www.nber.org/reporter/summer06/alesina.html

Quarterly YoY Real GDP Growth - EU-25, Czech Republic, Slovakia (in %)

2007-06-24T13:54:00.001+02:00