Slovakia: Solid domestic demand boosting the economy

Erste Bank Research Team Erste Bank

Household consumption-driven economic growth. ECB: next interest rate cut in October. Consolidation remains in focus. Weaker dollar expected.

Economic activity showed a strong performance in the first half of the year. After robust growth in 1Q, the second quarter posted y/y GDP growth of 1.9%. This was mainly driven by domestic demand, particularly household consumption, as household budgets recovered from a prolonged period of elevated inflation. For the rest of the year, household spending is expected to further support growth, alongside investments spurred by NextGen funds. A rebound in foreign economies, anticipated in 2025, could boost activity, especially in Slovakia's industrial sector. GDP growth is projected to reach 2.2% this year.

The disinflation period in Slovakia has ended, as the y/y inflation rate started rising again, due to the fading base effect. Core inflationary pressures persist in the economy, largely driven by a strong labor market. Inflation is expected to average around 3% this year. Slovakia anticipates the longdiscussed consolidation plan from 2025, with the Ministry of Finance facing the challenge of addressing both the current deficit and new expenditure measures proposed by coalition parties. Consequently, the total consolidation could amount to EUR 2.6bn. Additionally, potential rule of law violations could jeopardize EU funds.

GDP (real,y/y)

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Erste Bank Research Team

Erste Bank

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