S&P affirms Slovak rating, changes outlook to negative

On the radar

• S&P kept Slovakia’s rating but changed the outlook to negative from stable.

Economic developments

On Friday evening, S&P revised Slovakia's outlook to negative while affirming its A+ sovereign credit rating. The outlook deteriorated due to global trade tensions affecting Slovakia's automotive-heavy industry, potentially damaging fiscal consolidation efforts and increasing its debt ratio. S&P now projects the Slovak economy to grow by only 1.6% in 2025 and 1.3% in 2026. Despite a sluggish external environment, EU-funded investments and Germany's fiscal stimulus are expected to provide some support. This rationale aligns with our assumptions, although we see slightly higher growth at 1.8% and 1.5% for this year and next, respectively. S&P also reviewed the government's consolidation efforts, acknowledging the substantial measures in 2025 and anticipating a similar package for 2026, which should reduce the deficit to around 3%-4% of GDP by 2027. The adverse scenario, leading to a downgrade, involves lower-than-expected growth affecting deficit and debt levels. Conversely, better adaptation to structural challenges and improved governance could lead to a neutral outlook revision.

Market developments

CEE currencies have strengthened over the last week. The Czech koruna appreciated below the 25 level against the euro and the Hungarian forint returned toward 405 on Monday morning. Tomorrow, the Hungarian central bank will hold its MPC meeting, with the widely expected outcome is that rates will remain on hold. We anticipate some monetary easing (altogether -50bp) only in the second half of this year, when rates on global markets decline further. Last week, the situation on CEE LCY bond markets was rather calm. The auction calendar for this week will be relatively empty, with Poland and Hungary conducting their usual bond auctions.

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