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Slovak economic boom, 2009 euro entry on track

05 April 2007, 22:54 CET

(BRATISLAVA) - Slovakia's economy is on track for further growth and should meet adoption criteria for the euro in early 2009, the Organisation for Economic Cooperation and Development said Thursday.

"Slovakia is well positioned to meet the conditions for euro adoption in 2009," OECD Secretary General Angel Gurria told a Bratislava news conference as he presented the group's report on Slovakia.

Eurozone criteria for public deficit, overall debt and inflation appeared to be within reach without problems, he added.

Slovakia's "stellar economic performance," with record 8.3 percent growth last year, should continue at around 7.5 percent this year and 8.0 percent in 2008, before falling back to roughly 5.25 percent in 2005, the 30-nation OECD said.

The upbeat report nonetheless contained some warnings for the former communist Central European country and the left-wing dominated coalition government of Robert Fico, which swept to power in June 2006.

Fico's government, which raised the minimum wage by 10.1 percent as one of its first moves in October, should weigh carefully the consequences on the economy and employment market, especially for low skilled workers, before further increases, the report warned.

Steps to rewrite existing labour laws, which is some cases would boost social equity by giving part time workers a fairer deal, should also avoid creating extra obstacles, it added.

In spite of significant steps to reduce the jobless total to 13.0 percent last year, long-term unemployment at around 10.0 percent is still the highest in the OECD and requires more government action.

The report suggested incentives for lowest paid workers, which would also help tackle poverty, and moves to encourage workers to move to where jobs are on offer.

Slovakia's high productivity gains in recent years have been based on introduction of new technology and know-how. In the future, the government should improve the education level, which trails the OECD average, the report said.

Education of the large Roma minority, which accounts for around seven percent of the population, was particularly poor, the report said citing official figures showing three-quarters of them at best received a primary school education.

Brakes on business, such as high administration costs and obstacles, and weak competition in some areas of the economy such as retailing and energy should also be tackled, the report adds.

Privatisation should be relaunced in some areas where competition is lacking, such as energy and telecommunications, the report said. Fico's government has put a brake on sales of state assets.

Adoption of the single currency would likely result in a sharp fall in interest rates, sparking an economic boom and triggering "a boom bust cycle," the report warned.

Fortunately, the government's long-term budget reform measures, due to continue into 2010, should give it room to take measures to boost or suppress growth, it added.

The OECD is an international economics institution that counts many of the world's most industrialised countries as members.

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