Slovakia: The economy captive to US presidential policy

The Slovak economy slowed at the start of the year, with annual growth falling just below one percent. In light of recent developments, we are revising our GDP growth forecast downward to 1.5% for this year, matching our projection for 2026. The greatest risk lies in foreign trade, where the potential imposition of permanent tariffs by the U.S. could significantly disrupt economic activity.

Annual inflation has risen this year, primarily due to an increase in value-added tax. Services have become the main driver of price growth. We expect inflation to rise slightly further this year, although it is already nearing its peak. Price pressures will continue to reflect the burden on businesses caused by the newly introduced transaction tax. Average inflation (CPI) is expected to remain around 4% this year.

Unemployment landed at 5.3% at the beginning of the year, close to a historic low. However, persistent challenges in both Slovak and global economies are expected to push the number of unemployed higher, primarily from the industrial sector. Combined with additional costs imposed on employers, this will reduce upward pressure on wages, for which we expect annual growth of 5.5% this year.

The size of next year’s fiscal consolidation package is expected to reach approximately EUR 1.7 billion. A positive aspect is the government's intention to focus primarily on the expenditure side. However, part of the package will likely be used to finance new spending measures, which will partially offset its impact on deficit reduction. Public deficits are projected to decline toward 3 percent of GDP by 2027. To meet this target, additional consolidation measures totaling around EUR 2 billion will still be necessary.   

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