VZCZCXRO2831
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHSL #0144/01 0711611
ZNR UUUUU ZZH
R 121611Z MAR 07
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC 0760
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 BRATISLAVA 000144 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR AALIKONIS 
USDOC FOR MROGERS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD LO
 
SUBJECT: SLOVAKIA'S 2006 GDP GROWTH AT 8.3 PERCENT SECOND HIGHEST IN 
EU 
 
¶1.  SUMMARY: Slovakia's economy continues full steam ahead, posting 
9.6 percent growth in the fourth quarter of 2006, and a year-ending 
GDP growth of 8.3 percent in real prices for 2006. GDP growth was 
driven mainly by net exports, including roll-out production of 
automotive companies, machinery and electro- technical industry. 
The corporate sector is the primary beneficiary of this growth, as 
real wage growth lagged well behind productivity levels.  Analysts 
expect rapid GDP growth around 11.5 percent in the first months of 
2007 as KIA and Peugeot continue to boost production.  Ruling and 
opposition political parties are taking credit for the positive 
economic data.  END SUMMARY 
 
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STRUCTURE OF GROWTH IS BALANCED 
------------------------------------ 
 
¶2.  Slovakia's gross domestic product (GDP) rose by a real annual 
rate of 9.6 percent in the fourth quarter, to SKK 438.8 billion (USD 
16.9 billion) in fixed prices, beating all market forecasts by two 
percentage points.  For the full year 2006, the Slovak economy 
accelerated by 8.3 percent year-on-year, the highest rate in 10 
years, to SKK 1,636 billion (USD 63 billion), after a 6.1 percent 
growth in 2005.  Slovakia has had the second highest GDP growth rate 
among EU countries, following Estonia with GDP growth at 11.2 
percent, and fastest growth in central Europe.  Sources of net 
exports to domestic demand are at 55 - 45 percent, while private 
consumption was up 6.1 percent.  Value added manufacturing increased 
by 16.6 percent, out of which automobile/ electronics/machinery grew 
by a stunning 50.8 percent.  January 2007 industrial production 
reached 17.4 percent, beating all expectations.  Auto production 
increased by 126 percent, which was greater than the 104 percent 
expected from the start of production at Peugeot and Kia. Car plants 
are expected to produce 585,000 cars in 2007 compared with last 
year's 292,000. 
 
------------------------------ 
UNEMPLOYMENT AT A SIX-YEAR LOW 
------------------------------ 
 
¶3. According to the Statistical Office (using data based on random 
telephone surveys), Slovakia's unemployment rate fell 3.3 percentage 
points year-on-year in the fourth quarter, to 12 percent, the lowest 
rate since the same period of 1998. The overall number of unemployed 
fell 88,600 to 319,000, and the jobless rate fell 2.9 percentage 
points in 2006 to 13.3 percent. (NOTE: Statistics provided by the 
Ministry of Labor, which are more in line with the U.S. methodology 
focusing on those actively seeking employment, indicated that 
unemployment on a seasonally adjusted base dropped to 9.4 percent in 
December, the lowest rate since 1993).  On average 2.3 million 
people were employed in 2006, which is a 3.8 percent increase in 
comparison with year 2005.  The employment rate grew by 1.7 
percentage points to 60.2 percent over the previous year. 
 
------------------------------- 
PRODUCTIVITY OUTPERFORMED WAGES 
------------------------------- 
 
¶4. Real wage growth of 3.9 percent in the fourth quarter of 2006 was 
relatively low in comparison with the 7.4 percent increase in labor 
productivity.  For the year real wages grew by 3.3 percent real wage 
growth while labor productivity increased by 5.8 percent.  The 
average nominal monthly salary in the Slovak economy reached SKK 
21,131 (USD 815) at the end of the fourth quarter 2006, up 8.6 
percent from a year ago. On average, the Slovak monthly salary is 
approximately 77 percent of that in the Czech Republic, and remains 
lower than in Poland and Hungary. The strong economic growth 
primarily benefited owners of capital; profitability in the business 
sector was almost 26 percent. 
 
¶5.  COMMENT: The Slovak koruna has continued to strengthen (to SKK 
25.9/USD as of 3/12) on the massive industrial growth and increasing 
exports.  The structure of economic growth is expected to remain 
balanced, and other sectors (mainly electronics and machinery) are 
expected to build on automotive sector growth.  Just last week 
Samsung confirmed an approximately EUR 450 million investment in an 
LCD manufacturing plant employing upwards of 3000 people and 
beginning production in 2010.  Prime Minister Fico, who has been in 
office since the end of June 2006, and the opposition Slovak 
Christian and Democratic Union (SDKU), which was responsible for the 
reforms that led to the influx of FDI that is driving the growth, 
both take credit for the record economic performance.  Although most 
economic analysts side with the former government, Fico's strong 
polling numbers suggest that the current government is one of the 
prime beneficiaries.  Continued strong economic expansion beyond 
2007 and 2008 will depend on several key decisions of the present 
government to be made in 2007, including reform of the hospital 
 
BRATISLAVA 00000144  002 OF 002 
 
 
system, announced changes in pension system, as well as new 
amendments to the labor code.  Even more important from a business 
standpoint is the ability of investors to continue to find qualified 
personnel in an ever-tightening labor market, especially in Western 
Slovakia. END COMMENT. 
 
VALLEE