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Slovakia

Consolidation is shaping the economic outlook

Last update – January 2025

Country rating 


LOW RISK FOR ENTERPRISE
Economic risk

Very low risk of payments disruption
Business environment risk
Low risk of payments disruption
Political risk

Very low risk of payments disruption
Commercial risk
Low risk of payments disruption
Financing risk
Low risk of payments disruption
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Form of state
 Parliamentary Democracy
Head of government
 Robert FICO (Prime Minister) 
Next elections
 2027, legislative

Strengths & weaknesses

  • Low systemic political risk
  • Good regional and international relations; EU membership
  • Eurozone membership providing for low transfer and convertibility risk
  • Solid banking sector
  • Strong business environment overall; very attractive for foreign investors
  • Small domestic market
  • High dependence of the economy on the automobile sector and on exports
  • Relatively high external debt level

Economic overview

Growth outlook balances export challenges while inflation pressures rise

Slovakia has been a strong performer compared to both Eurozone and emerging economies, with real GDP expanding by an average +3.3% over the past 20 years. However, a high dependence on exports (amounting to almost 100% of GDP), in particular on automotive shipments, causes above average cyclical fluctuations in growth. Moreover, a high dependence on global supply chains and energy imports makes the Slovak economy vulnerable to external shocks. As a consequence, the economy was hit hard by the global Covid-19 crisis (-3.3% decline in 2020), despite sizeable economic policy support. And after a strong recovery in 2021 (+4.8% growth), growth slowed down markedly in 2022 (+1.9%) and 2023 (+1.6%) as a result of the consequences of the war in Ukraine, notably the subsequent EU sanctions on Russia and soaring energy prices. On the demand side, weak growth in 2023 reflected contracting consumer and public spending and a drop in inventories. However, a recession was avoided thanks to a solid rise in fixed investment and a positive contribution to growth by net trade. The latter was a result of a much stronger decline in imports than in exports. In 2024, Slovakia's GDP grew by +2.0% supported by the recovery of consumption from the energy price shock and a rebound in public spending. Looking ahead, exports are expected to grow despite risks from weaker trading partners. Private consumption may decline due to VAT increases and subsidy expirations, but wage growth will help. Strong private and public investments, aided by EU funds, will support GDP growth, projected at +1.7% in 2025 and +2.3% in 2026.

Inflation has moderated but will remain pronounced in 2025-2026. Consumer price inflation has eased from an average +11% in 2023 to +2.8% on average in 2024, in part due to base effects, the ECB's tighter monetary policy and slower domestic demand. Going forward, inflationary pressures remain in the cards. Energy inflation is set to rise as government measures regarding gas prices for households are set to expire in 2025. Additionally, the consolidation package, which is set to be implemented in January 2025, includes an increase in VAT rates and thus directly affects consumers. Moreover, the tight labor market provides conditions for strong wage and price growth in the services sector. We forecast annual average headline inflation at +3.2% in 2025 and +2.7% in 2026. Meanwhile, Eurozone membership provides for low transfer and convertibility risk and has decreased external vulnerabilities related to exchange rate risk in Slovakia.

Worsened but manageable public and external finances

Slovakia’s public finances have deteriorated in recent years but should remain manageable over the two-year forecast horizon. The Covid-19 crisis reversed seven years of fiscal consolidation. The annual fiscal deficit had been below -3% of GDP since 2013 (on average -1.9%). As a result, total public debt fell from 55% of GDP in 2013 to 48% in 2019. Then, fiscal stimulus measures combined with declining nominal GDP in the wake of the Covid-19 crisis resulted in large fiscal shortfalls of more than -5% of GDP in 2020 and 2021. Following an improvement to -1.7% in 2022, the deficit slipped again to -4.9% in 2023 owing to increased expenditure to counter social pressures as well as the impact of high energy prices. Although energy-related measures are expected to be phased out in 2025, the annual fiscal deficit is forecast to remain above -5% of GDP in 2025, mainly owing to a new range of social expenditure measures and an increase in defense spending, dropping again to below -5% in 2026. Nonetheless, financing the deficits should be manageable even though yields on Eurobonds have increased. The government is also eligible for substantial EU funding. As a result of several years of elevated fiscal deficits, total public debt has risen and should remain at close to 60% of GDP in 2025.

Slovakia’s external position has largely rebalanced after it rapidly deteriorated in 2022. Following a decade of moderate current account surpluses or deficits (on average -1% of GDP in 2012-2021), a large external shortfall of around -8% of GDP was posted in 2022, mainly a result of surging energy import prices. Moreover, only one-fourth of the shortfall was covered by net foreign direct investment inflows, which have a longer-term nature, in contrast to 61% of the cumulative deficit in 2015-2019. As energy prices moderated from the very high levels in 2022 and imports contracted substantially in 2023 due to weak domestic consumption, the current account deficit narrowed markedly to -1.6% of GDP in 2023. As imports are expected to recover going forward, we forecast the annual external shortfall to stay below -3% in 2025 and 2026. Overall, thanks to Slovakia’s Eurozone membership, external liquidity risk should remain limited.

Strong business environment but policy trends require monitoring

The Slovak business environment is well above average. The World Bank Institute’s annual Worldwide Governance Indicators surveys suggest that the regulatory and legal frameworks are generally business-friendly though a certain level of corruption is still perceived as present. The Heritage Foundation’s Index of Economic Freedom survey 2024 assigns Slovakia rank 34 out of more than 180 economies, reflecting strong scores regarding property rights, judicial effectiveness, tax burden, trade freedom and investment freedom. However, weaknesses remain in the areas of government integrity and labor freedom. Meanwhile, our proprietary Environmental Sustainability Index puts Slovakia at rank 69 out of 210 economies, reflecting strengths in energy use and CO2 emissions per GDP, water stress as well as its exposure to climate events and its readiness to protect itself against such events. However, there are still weaknesses in renewable electricity output and the recycling rate.

Overall systemic political risk is relatively low. Slovakia is a stable democracy and has good international relations, reflected in its EU, NATO and OECD membership. Government stability has suffered somewhat since 2016 which jeopardizes effective policymaking and reform progress. The left-nationalist coalition government, which came into office after early elections in September 2023, is more Eurosceptic than its predecessor. The European Commission argues that it has made several legislative changes that weaken the rule of law and the prosecution of corruption allegations. Slovakia is therefore threatened with the suspension of some EU funding.

Trade structure by destination/origin

(% of total, 2023)

Trade structure by product

(% of total, 2023)

Contact 

Jasmin Gröschl
Allianz SE
+49 89 3800 89991
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