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Despite an investment boom, GDP growth is hurt by falling E.U. demand for the nation's exports.

Economic reforms and European Union membership have generated an investment boom in Slovakia's manufacturing, construction and service sectors. Gross domestic product growth peaked at 10.4% in 2007 as new automobile and electronic plants started full-scale production.

However, Slovakia's performance is tied closely to E.U. demand for its exports, and the slowdown in E.U. growth is starting to be felt in Slovakia. The Statistical Office reported GDP growth in the third quarter slowing to 7% year-on-year after 9.3% and 7.6% in the first and second quarters, respectively. The government estimates that the economy will grow by 4.7% in 2009, with export growth slowing from 10% in 2008 to 5.9%. Recent data do not yet fully reflect the impact of the crisis, and some fear that growth could slow below 4%.

Anti-crisis package. Prime Minister Robert Fico argues that higher domestic consumption will help Slovakia get through the crisis and perhaps reverse disturbing trends in employment. Accordingly, the government has drafted a package of new economic measures to stimulate demand. These include completing a nuclear power station on the Bohunice site and using public-private partnerships to build new roads and expand Bratislava's Stefanik airport. The government also seeks to reform the labor market and provide loans to small and medium-sized enterprises.

Euro perspective. Meanwhile, Standard & Poor's 500 and Moody's have upgraded Slovakia's sovereign rating from A to A+. They cite Slovakia's modest debt burden, investment-oriented policies and the switch to the euro in January 2009.

Critics have argued that Slovakia is needlessly surrendering control over monetary policy and setting itself up for high inflation due to the switch-over. However, the timing for euro adoption now looks fortunate:

--The drive for the euro has meant long-term fiscal frugality and restrained the spending desires of Slovakia's left-leaning government.

--Slovakia's relatively low fiscal deficit of 2.25% of GDP in 2008 has reduced its need to borrow during the global financial crisis.

I recently spent a few days in Moscow meeting with a variety of economic and financial officials and analysts, both in the public and private sector.

Until July of this year, Russia was rosy: It was growing at an annual rate close to 8%; oil prices were peaking at $140 a barrel; the country was running a large fiscal and current account surplus; it had a war chest of $600 billion-plus of foreign reserves; and its stock market, bond markets and currency values were strong. Policy makers were thinking of turning the ruble into a major reserve currency, at least for the CIS bloc.

This economic and financial success led Russia to flex its geopolitical muscle, challenging the U.S. on a number of political and military issues and using its energy power as an instrument of foreign policy in its relations with the Eurozone and its former Soviet neighbors. The peak of this resurgence of the Russian bear came during the August war with Georgia, when Russia flaunted its military power as the U.S. looked impotent in its inability to defend an ally.

But what a difference a short time makes. Six months later, Russia is in deep economic and financial trouble.

The S&P has just announced that it has lowered Russia's foreign-currency credit rating by one notch from BBB+ to BBB. In less than six months, oil prices have fallen to under $50 a barrel (from the $140-plus peak of July). The stock market has fallen by over 60%, and on some days it has been shut down to prevent a free-fall. The current account surplus has turned into a near deficit and a sure deficit by 2009. The country has experienced a capital flight of over $100 billion and has lost about $150 billion of foreign reserves (now down to about a $450 billion level). It is facing massive external debt-financing problems as its banks financed their lending with foreign currency borrowings and its corporate firms financed massive expansion with foreign currency debt. It is now desperately trying to prevent a sharp depreciation of its currency by aggressive foreign exchange intervention. It may face a large fiscal deficit (2% of GDP) next year, and its GDP growth rate is sharply slowing down, leading the World Bank to predict a rate of only 3% in 2009--with leading local analysts predicting an actual recession (negative growth of as much as -2%) in 2009. (See the recent analysis by RGE's Rachel Ziemba for more on the risks of a hard landing in Russia.)

Given this sudden change in Russian fortunes, there are several key policy issues that the authorities need to deal with. Of course, given the external shocks (terms of trade worsening and a sudden stop of capital and credit), it was important to use the buffer of foreign reserves to avoid a bank run by providing liquidity and capital to banks--and by providing a fiscal stimulus to a country that is sharply slowing down.

But the key unresolved policy issue is what to do with the exchange rate. Until recently, Russia was on an effective basket peg (with 55% for the dollar and a 45% weight for the euro). But with oil prices now down over 60% from the peak of the summer, and with incipient current account and fiscal deficits and a likely recession in 2009, the currency is obviously overvalued. A reasonable estimate of the needed exchange-rate depreciation--with oil at about $50 a barrel in 2009--is 25%. But until recently, the authorities resisted the needed depreciation through aggressive foreign exchange intervention.

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Amid the roiling waters of the stock market and economy, which have tossed tech investors around for weeks, Apple Chief Executive Steve Jobs made a special guest appearance on Apple's fourth-quarter earnings call Oct. 21 to try to calm things down.

Profits soared (BusinessWeek.com, 10/21/08) on knockout iPhone numbers and strong Mac and iPod sales. But Jobs wanted to make a point broader than any one quarter's results: Apple planned to seize the opportunity of these difficult times to bolt ahead of the competition. He pointed out that Apple (AAPL) has nearly $25 billion in the bank. The economy could present "some extraordinary opportunities for companies that have the cash to take advantage of them," Jobs said. "We may get buffeted by the waves a bit, but we'll be fine—and stronger than ever when the waters calm in the future."

These are difficult times for all companies. But some are figuring out how to thrive amid the turmoil. BusinessWeek's annual Tech Hot Growth ranking shows the sector's top 75 performers over the past year. Some have done well because they help their customers cut costs—witness IBM (IBM), Accenture (ACN), and software maker VMware (VMW). Others made the cut because they help customers generate more revenue in good times or bad. Google (GOOG), for example, reported a surprisingly strong quarter (BusinessWeek.com, 10/17/08) on Oct. 16, because companies that get sales from online advertising kept on spending. It also doesn't hurt to sell to the government, whose buying tends to be somewhat insulated from the broader economy. That factor propelled infrared technology supplier Flir Systems (FLIR) and defense suppliers Mantech International (MANT), Harris (HRS), and SAIC (SAI) into prime spots on this year's scoreboard.

Gilead Sciences at No. 1

The ranking is based on a number of metrics. Revenue growth counts the most, although total revenues, shareholder return, and return on equity all factor in, too. The ranking is based on the most recent four quarters available, as of Oct. 15.

Gilead Sciences (GILD), the top-performing company on the list, booked big gains in profits and return on equity through sales of its drugs to treat AIDS, hypertension, hepatitis B, and other diseases. It has capitalized on the success of its most recently approved HIV drug, Atripla, and its 2006 acquisition of pharmaceutical company Raylo Chemicals.

At the fastest-growing information technology companies, it's clear you need to take a different attitude in downturns than in normal times. You must focus on why you're going to stand out from your competition and why your customers will need you more than they need your rivals. You have to think aggressively—as Jobs is doing—rather than defensively, in retreat. "Selling more of the same doesn't work," says John S. Chen, CEO of Sybase (SY), which provides database software used widely on Wall Street and which ranked No. 34 on this year's list. Because Sybase customers Bear Stearns, Lehman Brothers, and Merrill Lynch (MER) have disappeared, Chen is concentrating on helping the finance industry's consolidators, including Barclays (BCS) and Bank of America (BAC), find new ways to reduce operating costs. "I'm desperately creating a lot more new functionality," he says.

So far, so good. On Oct. 21, Sybase reported that third-quarter sales rose 11% to $284 million, and profits rose 2%. Sybase's profits were up more than 77% during the 12 months ended in June, according to BusinessWeek's analysis.

Stock Woes For All

Tech companies are scrambling for advantage in these lean times. Intel (INTC) is one of several catering to budget-minded shoppers. The chipmaker is ramping up production of processors for a new class of small portable notebooks that cost as little as $300 to $400. Oracle (ORCL) has spent $34 billion on 50 acquisitions over the last 44 months and plans to shop for additional bargain buys in order to generate recurring product-support revenues, which roll in during good times and bad. And in the past five weeks, Microsoft, Hewlett-Packard, and Oracle have announced plans to buy back billions of dollars of their own shares.

Still, it's been a rocky road for the stocks of even the best-performing companies. The average share-price return for the 75 companies on the scoreboard was -37%, and the top 10 on the list generated an average return of -22%. Dell (DELL), which posted big gains in profitability and return on equity by cutting costs and revamping its products and distribution strategy, has warned of a tougher environment ahead. And investors worry that the down economy may erode prices for such premium brands as Apple and Salesforce.com (CRM).

"We'll be prudent," says Robbie Bach, president of Microsoft's $8 billion Entertainment & Devices Division, which makes the company's Xbox game console and Zune music player. Microsoft hopes consumers buy more Xboxes as they resort to stay-at-home entertainment instead of going out. But Bach doesn't think consumers' holiday spending will accelerate until after the Presidential election. "At this time of year, we're talking to our retail partners every day," he says.