The Slovak economy has enjoyed a stellar performance in recent years, growing significantly faster than other OECD economies. However, the economy is now facing a major slowdown reflecting the headwinds from the global economy. While past growth has contributed to further catching-up to the income levels of the more advanced economies, the gap relative to the European Union (EU) countries prior to the 2004 accession remains large, reflecting both lower productivity levels and lower labour utilisation. Going forward, adapting the economy to life within the euro area is the key challenge. Being a catch-up country with a significantly lower price level relative to the euro area is adding to the challenge, as the Slovak economy will have to deal with financial deepening, low real interest rates and changes in its economic structure. Flexible labour and product markets as well as a suitable fiscal policy framework are essential ingredients to cope with these challenges as they will facilitate the adjustment to shocks in the absence of the previous possibilities of changes in the exchange rate or monetary policy settings. In addition, these ingredients are also the best contribution of policy to sustaining high economic growth.