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Slovenia and Poland Economies, Research Paper Example

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Research Paper

As of January 2012, Slovenia was the only part of formal Yugoslavia that was a member of the European Union (EUbusiness). Having adopted the Euro as a currency in January 2007, the current exchange rate between Slovenia’s currency and the U.S. dollar is about 0.77 Euro/1 Dollar (X-Rates). The country’s 2012 GDP was approximately $58 billion and even though the country has impressive infrastructure and educated workforce, the high degree of government involvement in the economy has been preventing the country from realizing its true potential. The 2007 financial crisis was a bitter experience for Slovenia who experienced its first ever quarter decline in GDP in the 4th quarter of 2008 after the second quarter of 1993 (Government of the Republic of Slovenia). The country’s GDP fell by 8.1 percent in 2009 and the country recorded an annual budget deficit of 6 percent of GDP during the years 2009-2011 and by 2011’s end, its public debt was 47.6 percent of GDP (Aslund). After modestly growing during the years 2010 and 2011, the GDP declined by about 2.2 percent during the year 2012. Slovenia’s unemployment rate was over 12 percent as of last year (CIA).

The inflation rate in Slovenia was only 1.8 percent in 2011 and grew by a slight margin in 2012 to end up at 2.5 percent. There was also a dramatic decline in the country’s current account balance which fell from being about $2.51 billion in 2011 to only about $298 million in 2012. This may be due to the fact that the country has been losing competition in legacy industries to China and India (CIA) and if the trend continues, the current account balance will soon become negative.

Even though Foreign Direct Investment (FDI) slightly grew from being $16.71 billion in 2011 to $17.91 billion in 2012, the amount could have been higher were it not for high tax rates. Nonetheless, the government has taken actions to boost FDI in the country. As far as the country’s economic structure is concerned, the primary sector accounts for only 2.7 percent of the national GDP, secondary sector accounts for 27.6 percent of the national GDP, and tertiary sector accounts for over two-third or about 69.7 percent of the national GDP (CIA). In this regard, Slovenia is quite alike the developed countries like the U.S. and U.K. where primary and secondary sectors are increasingly being replaced by the tertiary sector.

Being a member of the European Union, Slovenia has to abide by the rules governing free trade within the Euro Zone region but the country’s government has erected artificial barriers to protect local companies. It remains difficult for international companies to secure government contracts (U.S. Department of State).  As far as Slovenia’s near-term economic outlook is concerned, the country was able to transition from a state economy to the free market relatively smoothly but the country has been struggling currently and its credit rating was recently downgraded from A2 to Baa2. The reasons cited for the downgrading are substantial amount of bad loans in the banking sector and government’s troubled finances. Another cause of concern is the country’s heavy dependence on exports such as cars, automobile products, and electronics (Spiegel Online International) which may decline due to competitive pressures from countries with lower labor costs.

Judging by the current trends, Slovenia may continue to face increasing imports as well as declining exports. The country will need sizable political and economic reforms to improve its finances. In addition, the government may take steps to encourage FDI by reducing bureaucratic redtape and announcing incentives. The government may also benefit from lower tax rates as they continue to be high.

As far as Poland is concerned, the country joined the European Union in 2004 and has come a long way from being a communist state to being a democratic, market-oriented country. The country is notable for being the only country in the European Union to avoid recession during the 2008-2009 downturn. Some of the reasons why Poland was the only country in the European Union to register positive growth in 2009 were low reliance on imports and flexible exchange rate (Amdersen). Poland also continued to post impressive GDP growth rates in 2010 and 2011 at 4.3 percent (The World Bank). Thus, floating exchange rate has proven to be quite beneficial choice because it allows the country to use monetary tools to combat difficult economic conditions which many European Union members can’t. Nevertheless, Poland suffers from high unemployment rate and its infrastructure is still poor. At the same time, the country’s private sector has failed to realize its true potential due to rule of bureaucracy as well as corruption and bureaucratic red tape (Dimireva).

Poland’s GDP was $802 billion during the year 2012 and it’s GDP growth rate was 2.4 percent during the same year even though it was less than the 4.3 percent achieved previous year. The country’s unemployment rate was also almost unchanged at 12.6 percent in 2012 as compared to 12.4 percent the previous year. Poland’s inflation rate was 3.6 percent in 2012, an improvement over 2011’s 4.2 percent. The country’s current account balance and exports remained almost same in 2011 and 2012 (CIA).

In case of economic structure, the primary sector accounts for about 3.5 percent of the national GDP, secondary sector accounts for 34.2 percent of the national GDP, and tertiary sector accounts for a little less than two-third or about 62.3 percent of the national GDP. The FDI in Poland was $194.9 billion in 2012, a slight improvement over $190.9 billion in 2011. Poland has great economic prospects if the country is able to improve its infrastructure such as roads and reduce corruption and bureaucratic structures (CIA). As far as Polish currency Zloty is concerned, the current exchange rate is about 1 USD to 3.17 Polish Zloty (FX-Rate).

Barriers to entry in Poland are low but uncertainty in legal framework as well as corruption continues to be a hurdle in the way of FDI (Heritage Foundation). Despite certain shortcomings, Poland remains an attractive investment destination for foreign investors (Bureau of European and Eurasian Affairs). Poland’s near-term prospects look promising, with government deficit to continue falling for the next few years. Inflation is also expected to slow down this year (European Commission). Thus, factors that have been keeping Poland behind are mostly internal such as infrastructure and corruption and progress in these areas should result in encouraging economic performance.

References

Amdersen, Camilla. Poland: European Success Story but Challenges Ahead. 26 March 2010. 9 March 2013 <http://www.imf.org/external/pubs/ft/survey/so/2010/car032610a.htm>.

Aslund, Anders. Lessons from Slovenia’s Curiously Unexpected Financial Crisis. 6 September 2012. 9 March 2013 <http://www.piie.com/blogs/realtime/?p=3086>.

Bureau of European and Eurasian Affairs. U.S. Relations With Poland. 25 October 2012. 09 March 2013 <http://www.state.gov/r/pa/ei/bgn/2875.htm>.

CIA. Poland. 09 March 2013 <https://www.cia.gov/library/publications/the-world-factbook/geos/pl.html>.

—. Slovenia. 9 March 2013 <https://www.cia.gov/library/publications/the-world-factbook/geos/si.html>.

Dimireva, Ina. Poland: country overview. 12 February 2013. 09 March 2013 <http://www.eubusiness.com/europe/poland>.

EUbusiness. Slovenia’s economy in facts and figures. 14 January 2012. 9 March 2013 <http://www.eubusiness.com/news-eu/finance-public-debt.ejg>.

European Commission. European Economic Forecast. Winter 2013. 09 March 2013 <http://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/ee1_en.pdf>.

FX-Rate. Polish Zloty. 09 March 2013 <http://fx-rate.net/PLN/>.

Government of the Republic of Slovenia. Measures taken in reponse to global financial and economic turmoil in Slovenia. 9 March 2013 <http://www.vlada.si/en/projects/previous_projects/tackling_the_crisis/>.

Heritage Foundation. 2013 Index of Economic Freedom. 09 March 2013 <http://www.heritage.org/index/country/poland>.

Spiegel Online International. Ratings Downgrade: Slovenia Becomes Europe’s Latest Worry. 3 August 2012. 9 March 2013 <http://www.spiegel.de/international/europe/ratings-downgrade-turns-slovenia-into-europe-s-latest-problem-child-a-848068.html>.

The World Bank. Poland. 9 March 2013 <http://www.worldbank.org/en/country/poland/overview>.

U.S. Department of State. U.S. Relations With Slovenia. 29 August 2012. 9 March 2013 <http://www.state.gov/r/pa/ei/bgn/3407.htm>.

X-Rates. Currency Calculator. 9 March 2013 <http://www.x-rates.com/calculator/?from=USD&to=EUR&amount=1>.

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