# Slovakia's Convergent Economy ### Slovakien Erfüllung der Maastricht Kriterien und Wirtschaftliche Ausgangslage ### Slovakien Anpassung an Eurozone und Konvergenz ### Ergebnisse und Langzeiteffekte Starting from 2015, Slovakia experienced a consistent increase in unit labour costs (ULC) in excess of euro area and EU averages. Nominal wages grew steadily from 2015, exceeding 5% annually from 2017. The nominal ULC growth in Slovakia averaged 4.3% annually between 2015 and 2023, notably surpassing the euro area average of 2.6%. While inflation differentials between Slovakia and the euro area were rather significant from 2017 onwards, real wage growth still surpassed growth in productivity until 2021. The years 2022 and 2023 saw a substantial inflation surge, leading to a decline in real wages, including for minimum wage earners, a trend more pronounced in Slovakia than in the EU and the euro area. The speed at which Slovakia’s productivity is converging with other EU Member States has decelerated. Compared to its EU counterparts, Slovakia’s relatively stronger labour productivity growth has slowed down since 2019. This moderation in productivity growth can be attributed to several factors. First, while the contribution of capital deepening strengthened over time, there were less extensive foreign direct investment inflows in new production capacities. Secondly, the economy exhibited a slowdown in technological advancement, limiting the corresponding contribution of total factor productivity. Finally, the country is experiencing negative demographic dynamics and shortages of skilled labour, which also create an additional drag on innovation Household debt-to-GDP in Slovakia has been rising significantly over the last decade. Household debt, which accounts for approximately 50% of private debt, has been rising every year from 25% of GDP in 2010 to 47.1% in 2022. In 2023, it declined to 44% of GDP, below the prudential threshold (48%) but above the fundamentals-based benchmark (29%) (see Table 2.2). The household debt level in Slovakia is now higher than those of regional peers, such as Poland, Hungary and Czechia, but still remains below the EU average as the starting point for the increases was comparatively low. (Slovakia Economic and Financial Affairs ISSN 2443-8014 (online) INSTITUTIONAL PAPER 276 | MARCH 2024 EUROPEAN ECONOMY In-Depth Review2024)