2007 OECD Economic Surveys: Slovak Republic 2007

image of OECD Economic Surveys: Slovak Republic 2007

Following major economic reforms, the Slovak economy has grown strongly in recent years, but still has some way to go to catch up with the advanced European countries.  This survey of the Slovak economy examines economic challenges faced by Slovakia including sustaining macroeconomic stability in a currency union, increasing employment rates, removing barriers to product market competition, and improving education outcomes.

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Catching up with advanced European countries and entering the euro area

Slovakia has enjoyed a stellar economic performance in recent years. Economic growth has been high and unemployment has fallen considerably, although longterm unemployment remains high. Slovakia is on track to satisfy the Maastricht convergence criteria for entry to the euro area in January 2009. The authorities now need to prepare the economy for life in the euro area. In the short term, this entails heading off a potential post-entry boom. In the longer term, it entails maintaining flexible labour- and product markets so as to facilitate adjustment to idiosyncratic shocks. Slovakia has made solid progress in the past decade in catching up to living standards in the EU15 countries, but still has far to go. This progress has been achieved through high productivity growth. Labour utilisation, however, has detracted from progress. There is still considerable scope to support catch up and reduce relative poverty through increasing employment rates. Similarly, regulatory reform that supports competition in product markets would both strengthen productivity growth and reduce income inequality. In the long term, improving education outcomes, including by reducing the impact of socio-economic background on outcomes, will be central to sustaining high economic growth and reducing income inequality.

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