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Slovak crowns at the highest rate in history

Is there a clear road to Euro zone?

Slovakia will become a member of Euro zone in 2009 and thus this relatively small country will present its ability to be a real team-mate within the European Union.

Following the figures in Slovak economy we must conclude that the country has been developing significantly.

In the next year, it is possible to achieve the Maastricht criterion regarding retaining the deficit in the budget below 3% of gross domestic product.

It was not expected to be so after the victory of the populist left-wing party SMER under the leadership of Robert Fico. Economists and minority representatives were even talking about “the worst possible alternative”. SMER’s victory wasn’t unexpected; opinion polls had been signalizing an overload of the general public with the enormous pace and reforms of the present government under the leadership of Mikulas Dzurinda for a long time before.

The essential uncertainty for foreign investors was represented by the threat of cancellation of 10% rate of taxation for all companies’ and natural persons’ income which was arising from the rhetoric of election campaign. In this context, it is necessary to mention that Slovakia has had the lowest rate of taxation in the European Union for a long period of time. However, the competition between the new coming countries within the European Union is not expected to finish soon.

The Slovak government passed the budget for 2007 that lies, in spite of the evidently increased expenses on social purposes, within acceptable limits with the deficit of 2.9% GDP. For the two on-coming years there is officially foreseen a deficit in the budget with a decrease of 2.4% or possibly 1.9% GDP.

In spite of that, handling the situation in the inflation rate is for Slovakia much more difficult: Slovakia must take into account maximum increasing of prices and first of all learn how to behave in this situation. On the grounds of a strong demand on the domestic market customer prices have increased at the same rate as the increasing wages on the prosperous economic market.

In September, consumer prices slightly increased in a year-on-year rate of 4.6% after an increase of 5.1% in August. Despite the currently decreasing pace of inflation it is probable that Národná banka Slovenska (NBS, National Bank of Slovakia) will mount up the basic domestic interest to fulfill the criteria for entering the Euro zone. In September at the monetary and political meeting, the NBS agreed on mounting up the interests by 25 basic points to the rate of 4.75%.

Besides the strong basic economical figures as well as the on-coming preparations for Euro implementation in 2009 Slovak crown has drawn attention of foreign investors. The exchange rate EUR/SKK has fallen below the level of 37SKK and on the 11th of October the crown achieved the new lower limit at the rate of 36.747SKK. From the technical and stock point of view there is a clear road to new record rates. Political interest environment shows that the crown is further increasing in value. If there did not exist any negative surprises regarding the access to European monetary union the medium-term rate would be heading to 35SKK. Exchange rate symbol.

(c) 2007 Eder Herbert, SLC-Europe s.r.o.

Slovak crowns in one-year stock chart

Slovak crowns in five-year stock chart

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