CEE: S&P downgrades Slovakia

On the radar

• S&P Global Ratings lowered Slovakia’s sovereign credit ratings.
• Today, there are no major releases scheduled in the region. Only Romania publishes money supply growth in the morning.

Economic developments

On Friday, S&P Global Ratings lowered Slovakia’s sovereign credit ratings from “A+” to “A”. The stable outlook reflects the expectation that both government and external indebtedness will remain moderate, alongside a gradual convergence of inflation toward eurozone levels. The stable outlook also reflects the expectation that institutional and governance effectiveness will not weaken significantly, which is important to ensure continued EU fund disbursements and to avoid negative repercussions for investor sentiment. S&P’s rating downgrade is above all a warning that, without sustainable consolidation, Slovakia’s fiscal policy could gradually push the country further into a higher-risk category. In uncertain geopolitical conditions, the fiscal space created by sound public finances is crucial - not only for investor confidence, but also for the state’s ability to respond to potential external shocks. In our view, the downgrade itself should not have a major and immediate impact on required yields or the risk premium on Slovak government bonds. Slovakia remains in investment grade and within the A rating category, which signals a strong capacity to meet financial obligations. Moreover, even after the downgrade, Slovakia’s S&P rating remains one notch higher than its ratings from the other two major rating agencies. In the near term, yield developments will likely continue to be driven more by external factors, especially geopolitical risks, energy prices and availability, as well as expectations related to the continuation of fiscal consolidation.

Market movements

The proposal to open the Strait of Hormuz and to end the war made by Iran to the US should be seen as positive by the markets. Decline of risk aversion overall support FX and bond market in the region. Poland’s Minister of Finance admitted that 2025 government deficit ballooned to 7.3% of GDP but Poland is not willing to give up on defense pending to reduce it. While Poland plans to take steps to reduce the budget gap to 6.8% of GDP in 2026, it also builds alliance with Baltic States to lobby in the EU for more aid. The government is also working to ensure the new SAFE loan for defense does not impact Poland's public finance deficit. Incoming Hungary’s Prime Minister is scheduled to discuss the EU funds with Von der Leyen on Wednesday. Prior to that, on Tuesday, central bank will announce an interest rate decision and communication will be closely watched for signs about monetary policy direction.

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