Slovakia needs to address high unemployment, social exclusion - EBRD.

By bne IntelliNews November 8, 2012
Slovakia should focus next year on education policy addressing skill shortages and on facilitating investment in the countrys eastern regions in order to deal with long term unemployment and social exclusion, which are still staying at the levels from the 2009 crisis despite the countrys strong economic recovery, the European Bank for Reconstruction and Development (EBRD) said in its 2012 Transition Report. Stimulating the knowledge economy remains a key objective for the new government, which will seek to encourage the growth of technology-intensive local enterprises and other SMEs, in particular those focused on job creation in the more remote parts of the country, the EBRD said. It noted that Slovakia has shown a very rapid recovery from the severe 2009 recession, achieving GDP growth of 4.2% in 2010 and 3.3% in 2011, well above the regional average. However, the central European countrys economic growth remains vulnerable to the cycle in German industrial production. Exports account for 80% of GDP and value added in manufacturing for about 35% of GDP, and this sector is in turn concentrated in a few products, mainly vehicles and electrical equipment. Slovak car production, which grew 51.6% y/y in the first eight months of 2012, is widely considered to be the sole contributor to Slovakias GDP growth of 3% in Q1 2012 and 2.8% in Q2 2012. However, unemployment rates have increased notably over the last few years, peaking at just under 15% in early 2010 and still at about 14% in mid-2012, with youth unemployment at 32%, the highest in the region of Central Europe and the Baltics, the EBRD said. It added that other key priorities for the Slovak government in 2013 should include making the framework for private pension funds more predictable and providing more possibilities for the private sector to participate in the financing of road infrastructure projects. While EU structural funds will remain the principal source of such finance, the private sectors capacity to design and partially complement such funding is as yet under-utilised, the EBRD said. It added that the extra taxes imposed on banks as part of the governments austerity drive could be a risk for the banking sector and should be limited to the revenue target announced. The cabinet introduced as of Jan 1, 2012 a 0.4% tax on corporate bank deposits, which was extended to cover also retail deposits as of October 1, 2012. It has indicated that the tax will be time-bound, and be phased out once a certain revenue target has been reached.

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