Slovakia’s economic landscape is looking ahead amidst very cautious optimism. Core GDP growth for both 2023 and 2026 is projected to be still low at only 1.5%. This extended horizon calls attention to a time of increased economic uncertainty for the country, driven in part by some serious risks coming from the nation’s foreign trade relationships. The United States may choose to make these tariffs permanent, which would very seriously jeopardize Slovak economic activity. This case further underscores just how connected global markets really are.
As of the first month of the year, Slovakia’s unemployment rate ticked up to 5.3% although that is still near all-time record lows. Unfortunately, recent long-term trends have been adverse, with the nation’s annual growth rarely exceeding one percent. This drop happened immediately at the beginning of the year. Growth has recently softened because of increasing inflation. This inflation is largely due to a significant increase in valued-added tax. For this year, the annual inflation rate is expected to be no more than 4%. It could go up a little further since inflation has not yet peaked.
Economic analysts have underscored that the highest danger to Slovakia’s economy is in its over-reliance on foreign trade. The looming threat of additional tariffs from the U.S. could disrupt not only trade relations but domestic economic stability. International trade is absolutely essential to Slovakia’s economy. Any adverse developments in this crucial space would have a disproportionate impact on future growth prospects.
Wage growth is forecasted at 5.5% this year alone. This reduction would provide significant relief to households that have been hard hit by inflation. Additionally, aggregate public deficits are estimated to decrease to around 3% of GDP by 2027. To reach this target, Slovakia will need to take more consolidation measures which we estimate at EUR 2 billion.
This situation of increasing inflation and flatlining economic growth poses a complicated challenge to decision makers in Slovakia. They are doubling down on tackling these economic challenges. Their first priority is reversing risks imposed from abroad while restoring certainty at home.