The Slovak economy remains resilient, but growth and fiscal challenges persist

Slovak economic growth remains below its potential. GDP increased by 0.8% y/y in 2Q 2026, while household consumption remained modest and investment declined. Following the weaker-than-expected second-quarter performance, we revised our GDP growth forecast for 2026 from 1.0% to 0.9%. Growth should accelerate to 1.7% in 2027, although geopolitical uncertainty, trade tensions and elevated energy prices remain important risks. Inflation developments have been more favourable than expected, mainly due to falling food prices and lower core inflation. Headline inflation slowed to 3.3% y/y in July, and we revised our average inflation forecast for 2026 down from 4.0% to 3.7%. Energy prices and geopolitical developments nevertheless remain important upside risks. The labour market has cooled but remains relatively resilient. Unemployment reached 5.6% in 2Q, while employment declined, particularly in industry. We expect unemployment to average around 6% in both 2026 and 2027. Nominal wage growth is gradually slowing but should remain close to 5% for 2026 as a whole.

Slovak government bond yields have risen alongside broader euro-area yields, while the spread over Germany has remained broadly stable at around 65–70 basis points. This suggests that the increase in yields has so far been driven mainly by the broader market environment rather than a significant increase in country-specific risk for Slovakia. Public finances remain one of the main domestic risks. We expect the deficit to remain around 4.5% of GDP in 2026 and move back towards 5% in 2027. Further consolidation will become increasingly difficult as the scope for additional revenue measures narrows and the electoral cycle approaches. Price growth in housing remains strong, although momentum is starting to moderate. Transaction prices increased by 13.6% y/y in 2Q 2026, supported by recovering mortgage demand and very weak housing supply. We expect prices to continue rising, but at a gradually slower pace.

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