Warmer inside

11 June 2009 By Martin Hutchinson

Latvia s troubles show the dangers the come with fixed exchange rates. But eurozonemember Slovakia has suffered less than its neighbours, despite entering at a high exchange rate. For small countries, the euro brings investor confidence that nothing else can match.

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Slovakia joined the euro on January 1 2009. Latvia, Estonia and Lithuania maintain fixed parities against the euro while Poland, the Czech Republic and Hungary have floating exchange rates.

Slovakia is expected by the Economist magazine to have a GDP decline of 2% in 2009, followed by 1.0% growth in 2010. That compares with expected GDP declines of 2009 of 15% for Latvia, 10% for Estonia, 8.5% for Lithuania, 0.8% for Poland, 3.0% for the Czech Republic, 6.0% for Hungary and 1.5% for Slovenia.

Slovakia had a current account deficit of 5.4% of GDP in 2008, compared to 6.2% in Latvia, 10.7% in Estonia, 13.8% in Lithuania, 5.2% in Poland, 3.0% in the Czech Republic, 5.3% in Hungary and 6.6% in Slovenia.

Slovakia's budget deficit is expected by the Economist forecasters to be 4.5% of GDP in 2009 compared to 8.0% in Latvia, 3.5% in Estonia, 2.7% in Lithuania, 3.8% in Poland, 4.0% in the Czech Republic, 2.9% in Hungary and 3.7% in Slovenia.

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