The economy of the Slovak Republic is going through a period of transformation. At present, reforms are underway in health care, the social sphere and the state and public sector.

Special features of the Slovak economy include:

a) low level of GDP and wages (estimated GDP for 2003 at current prices: 1 173 billion SKK, that is to say an estimated growth in GDP of 4% in comparison with 2002). GDP has been rising steadily for the last 11 years. In comparison with other European countries, wages are extremely low. Average earnings in the Slovak Republic are 9 times less (324 EUR) than in the French Republic and the Federal Republic of Germany and so the Slovak Republic is to be found on the lower rungs of the European ladder, ahead of Lithuania, Latvia and Romania. The drop in real wages in 2003 in comparison with 2002 was one of the biggest (1.4%). One of the reasons for this was the implementation of reforms, a particularly high 9.3% rate of inflation, tax reform (increase in consumption taxes), higher VAT rates and price deregulation and liberalisation (power supplies, rents, etc.). It is assumed that this will continue unchanged in 2004. Net real wages will be affected by tax equalisation (19%), a change in VAT rates (from 14% to 19% for foodstuffs and services and from 20% to 19% for other goods), and an adjustment in contributions (an overall reduction in employees’ contributions, except for those for the retirement pension system, which are to increase from 6.4% to 7%).

b) inefficient economy, low productivity, technological backwardness, severe ecological impact of the economy (result of under-investment in the past).

c) lack of business competitiveness and flexibility, inappropriate sectoral structure (the predominance of iron and steel, chemicals, arms industry, etc. results in low added value).

A positive consequence of the transformation of the economy is an improvement in foreign trade, which, for the 1st to 3rd quarters of 2003, contributed 77.4% of GDP (Statistical Office of the Slovak Republic), the deficit amounting to only 589 million SKK (following audit, the deficit is estimated at 1.5%). Year-on-year exports increased by 27.9% in 2003. Transport equipment, machinery and electrical equipment contributed more than 50% to exports and the motor vehicle industry increased its contribution to GDP and exports. There was a fall in exports of foodstuffs, textile products, footwear and timber and chemical products, etc.

It is estimated that exports will grow in the future as a result of the transformation of the economy, with an increase in the contribution of the product assembly sectors, the attraction of foreign investment and the development of services.

The labour market exhibited a continuing trend towards an increase in employment and a fall in unemployment. Employment increased by 2% in the first three quarters of 2003, in comparison with the same period in 2002, to 2 162 500. In the 1st to 3rd quarters of 2003, there was an increase in the number of employees in health care, financial services, public administration and defence, construction, real estate and letting, hotels and restaurants, industry and trade. In comparison with 2002, there was a fall in employment in agriculture, other social services, transport, post and telecommunications and education.

Average recorded unemployment (National Labour Office data) improved steadily during 2003, continuing the trend which had started in May 2002. The number of recorded unemployed in December 2003 amounted to 452 200, a 10% improvement over December 2002. In the last quarter of 2003, the unemployment rate increased again from its lowest point since 1998. The unemployment rate (registered - total number of recorded unemployed) rose slightly in December 2003 to 17%, 1.6% more than in December 2002. The unemployment rate (available – number of recorded unemployed available for work) amounted to 15.56% in December 2003, a year-on-year drop of 1.9%. Only a slight fall in unemployment is anticipated for the years to come.

The Slovak Republic is characterised by marked differences between individual regions. The best position among the eight regions is occupied by the Bratislava region with the highest share in Slovakia’s GDP, despite the 2nd lowest number of inhabitants - 599 700 (according to the Statistical Office of the Slovak Republic census of 31.12.2002). This region includes the capital city of Bratislava, which is in a favourable position for economic activity and has a concentration of state and public institutions, universities, banks, a highly qualified workforce and well-developed trade and services. The unemployment rate (registered) here in 2003 was 4.4% on average and the unemployment rate (available) was 3.9%. The situation in the labour market is worst in eastern Slovakia, especially in the Kosice region, where the unemployment rate for 2003 was, on average, 24.1% (registered) and 22.1% (available).