There are several factors influencing inflation. “The labor market state and wage bargaining process, capacity development and demand pressures, competition and competitiveness, exchange rate development, uncertainty involved in decision making, dual inflation. Besides real economic causes, there is also a psychological aspect to the level and inertia of the inflation process – which relates to impacts on inflationary expectations and the credibility of the central bank. As a result of the formation of long term expectations and the adoption of long term decisions, these are likely to become embedded in real economic processes.
This could endanger the disinflation process. (www. nbs. sk/157. pdf) The future plan of Slovakia is to bring the rate of inflation close to that in the European Union (EU) countries, but there is a concern that the transition processes may push inflation up to higher levels to about 9% in 2003 and 2004. Another macroeconomic indicator is Gross domestic Product. In 1992, Slovakia lost about 7% of financial help, it has received form the federal budget. (www. sario. sk), which helped to decrease Slovak GDP.
The development of GDP was in the period of 1990-1993 negative and lost 23% of the pre-communist period value (as mentioned in the introduction). In 1994 the growth was 4. 9%, which was very good number in spite of being in recession. Growth of Gross domestic product, which was in 1995 6. 2%, in 1996 6. 7%, and in 1997 6. 7% the highest in history. Because of investments, which were built mainly form foreign loans. Also, high industrial production driven by vibrant exports and high consumer demand was the motor of high economic growth.
Nevertheless, the most important spur of growth was the government’s infrastructure investment program, focusing on building new highways, modernizing power plants and development of new housing. An example of such an investment was the highway construction. Additionally, more domestic consumer confidence and consumption, exports contributed to GDP’s growth. Although fiscal spending might be good just on the short them basis, such a growth was unsustainable in the long term. These fiscal stimulating investments were the driving force behind the GDP growth in Slovakia. The Gross domestic product grew by 4. 1% in 1998.
(www. sario. sk) At the end of 98, the tendency of high economic growth drawn back by an apparent slowdown. This was mainly reflected in 1999 and GDP went down to 1. 9%, the lowest growth since the establishment of Slovak republic. (www. sario. sk) The draw back of the expansion was connected with an elementary and essential upgrading of the GDP’s structure, and due to fall of domestic demand. “The contraction of gross fixed formation capital was the cause of the sharp fall in domestic demand, which dropped by 23. 3 %”. ( www. slovakia. org) There was also a deceleration in private consumption growth from 5.3% to 0. 1 %.
That was because of decline in real salaires by 3. 1 %. ( www. nbs. sk) The down turn effects of weak domestic developments in GDP growth were subjected to compensation by the payment from net exports. When the growth of real exports reached 3. 6%, the sharp contraction of domestic demand in 1999 resulted in a decline of real imports by 6. 1 %. ( www. slovakia. org) Gross domestic product increased to 2. 2% in 2000, with a contraction of private and public consumption. (www. sario. sk)
Economic growth was pushed up by strong net exports. GDP grew by 2. 9% in the fourth quarter versus 2.5% growth the quarter earlier. (www. sario. sk) It was very positive and the growth in the fourth quarter emerged from a quicker rise in domestic demand and that this rise goes through industrial production and the construction output. A main surprise is that the contribution of net exports remains very strong. In 1999 (1. 9% growth), the gross domestic product was corrected in a necessary way accompanied by an “18. 02% year on year drop of gross fixed capital generation in 1999. Last year the share of investments in the GDP generation dropped from 41% to sustainable 33%.
That part of the GDP which affects the standard of living of people, it is household consumption, also grew in 1999 by 0, 5%. ” (www. Government. gov. sk). In 2000 GDP grew by 2. 2 %( as mentioned). (www. sario. sk) Slovakia was still recovering from the period of Meciar’s development of economy. GDP grew by 2. 2 percent in 2001 and did reach around 4 percent in 2002. (www. sario. sk) Supported by increased profitability and enterprise restructuring, fixed investment has grown mainly sturdily and optimistic private consumption has been underpinned by rising real wages and employment, as well as expansionary fiscal policy.
GDP is expected to grow by 4. 1% in 2003 due to stronger investment, optimistic mood about joining the European Union and NATO, and most important political stability guarantee performing necessary economic and structural reforms. Slovakia had always problem with unemployment as the majority of Post communist countries of central and Eastern Europe. During the period of 1990-1993 Slovak unemployment grew due to lesser military production but the main cause was hidden unemployment or over-employment, artificially kept by the communist regime.
Since 1993 the number of unemployed people has increased significantly to about 12. 2 %. ( www. sario. sk) Several factors caused the unemployment to skyrocket. Slovakia lost its exports markets within post communist countries and this lead to impossibility to create jobs, especially in agriculture and in production of weapon and military equipment (heavy industry) . In 1989 around 360 thousand people were employed in agriculture, 11 years later there were only 80 thousand. (www. essay.sk)
The majority ended up as unemployed, and people with low education and little skills were and are the most affected group. The first unemployment peak culminated in 1994 at the percentage of 13. 7% (366. 200 people) of labor force. (www. sario. sk) 1994 was one of the worst contemporary years, due to difficult transition process, and also from the perspective of rate of registered unemployment. Despite relatively high GDP growth in (1995-1998) the rate of registered unemployment only slightly decreased as a result of over employment during communism.
In this circumstance it is interesting to see the development in employment in relation with 1995, when growth the total Slovak employment increased just by 2. 2%. However, on the other hand the rate of registered unemployment slightly decreased only by 0. 6% in 1995 when the unemployment rate within Slovak economy was 13. 1 %. ( www. sario. sk) The first sight of lower rate was in 1995 and it was gradually decreasing to 11. 3% in the period of 1996.
The 1996 rate was the lowest in the Slovak independent history. In 1997 the rate was still relatively low about 11.8% due to massive government spending on dept from foreign loans, especially on public works as highways, employing the people, who had a lower standard of education and were employed in just seasonal (temporary) job. Slovak unemployment has a structural character because of job opportunities gap between the regions. In 1998 the rate raised to 12. 5% due a substantial deceleration in the growth of GDP. (www. sario. sk) Because of following causes, lasting disregard for accumulated problems, tight monetary policy pushing inflation down, and package of reforms in order to restore competitive ability of the Slovak economy.
In 1999 the rate was almost 16. 2% such a sharp increase was because of continuing government’s austerity package dealing with the structural problems like huge ineffective enterprises, banking sector with non-paid loans. (www. sario. sk) In 2000 the rate was 18. 6 still growing but improving with the government reforms. (www. sario. sk) However, in 2001 the unemployment rate was still growing despite healthier economic situation at 19. 2%. Since 2001 unemployment has been culminating due to seasonal employment in farming, tourism, and construction. (www. sario.sk)
The macroeconomic indicator in 2002 is not completely finished but the rate was about 18. 6%, which shows a positive trend in declining the unemployment because of restructuralization reforms and flow of foreign capital investment employing Slovak labor force. (www. sario. sk) Also, Slovak employed force did increase its productivity about 32% resulting in GDP growth and unemployment rate remaining the same. So far in 2003 the unemployment rate reached the lowest levels since 1999 and therefore Slovakia is heading into brighter future. The predictions are optimistic and the rate is supposed to have a declining trend in next 5 years.