Slovak GDP is forecast to expand by 2.2% in 2024, on the back of growth in private and public consumption. In 2025 the GDP growth is forecast to reach 2.9% supported by domestic demand. Inflation is projected to decelerate strongly to 3.1% this year, but to pick up to 3.6% in 2025 amid the expected convergence of energy prices to market levels. Amid tight labour market, real wages are set to increase. Public deficit is expected to increase to 5.9% of GDP in 2024 before decreasing slightly to 5.4% in 2025 as energy-support measures are assumed to wind down.
| Indicators | 2023 | 2024 | 2025 |
|---|---|---|---|
| GDP growth (%, yoy) | 1.6 | 2.2 | 2.9 |
| Inflation (%, yoy) | 11.0 | 3.1 | 3.6 |
| Unemployment (%) | 5.8 | 5.4 | 5.2 |
| General government balance (% of GDP) | -4.9 | -5.9 | -5.4 |
| Gross public debt (% of GDP) | 56.0 | 58.5 | 59.9 |
| Current account balance (% of GDP) | -0.7 | -2.0 | -2.5 |
Growth outlook is driven primarily by consumption and investment
Real GDP grew by 1.6% in 2023, primarily reflecting the decline in private and public consumption. The weaker economic performance of the country’s major trade partners resulted in a decline of exports and some deterioration in Slovakia’s market share. A simultaneous large fall in imports resulted in an overall positive contribution from net exports, but this was more than offset by the negative contribution of the strong drawdown in inventories.
Looking forward, economic activity is expected to accelerate in 2024 as private and public consumption resume growth and exports rebound strongly due to firming external demand. Government support measures are expected to continue limiting the impact of high energy prices for households and businesses in 2024. Furthermore, the projected real wage increases should provide an extra stimulus for private consumption. However, investment growth is set be limited in 2024, following a notable jump by 10.6% in 2023 as Slovakia intensified its use of EU funds by the end of the year. In 2025 investment is expected to pick up pace to a great extent driven by absorption of EU structural funds and the RRF. Overall, real GDP growth is projected at 2.2% in 2024 and 2.9% in 2025.
Demand for labour is set to remain robust amid a tight labour market
The unemployment rate is expected to continue declining from 5.8% in 2023 to 5.4% in 2024 and 5.2% in 2025, keeping the labour market tight. The main driving force behind decreasing unemployment is the decline in the working-age population, while labour demand remains robust. In 2023, nominal wages growth lagged behind the inflation rate. However, in 2024 and 2025 the compensation of employees is expected to grow markedly faster than inflation, resulting in an increase in real wages.
Inflationary pressures ease, but continue to be pronounced
In 2023 headline inflation remained high at 11% due to elevated inflation of energy and food prices. Inflation declined strongly by the end of the year and continued easing at the beginning of 2024. The government interventions to limit energy prices for households are set to continue throughout the year, contributing to a relatively subdued inflation of 3.1% in 2024. Food price inflation is expected to stabilise, benefiting from a deceleration in input prices. As government measures are projected to be phased out in 2025, energy prices are set to rise towards market prices, keeping energy inflation high and contributing to a relative increase in HICP to 3.6% next year. Compared to other components, prices in the services sector are expected to grow more dynamically driven by robust wage growth.
Budget deficit to peak in 2024
The public deficit increased to 4.9% of GDP in 2023, as a result of energy support, permanent increases in public sector wages and social benefits.
In 2024, the general government deficit is projected to increase further to 5.9%, driven by expenditure measures adopted in 2023. These include a higher compensation of public employees, a family package including a tax bonus, the introduction of a parental bonus under the pension reform together with a full 13th pension payment, and other expenditure-increasing measures. The net budgetary cost of measures to mitigate the impact of high energy prices is set to decline to 0.4% of GDP, compared to 2.1% in 2023. This is expected to be partly offset by new revenue-increasing measures such as the increase in the share of social contributions towards the first (public) pension pillar, a special levy on banks’ profits, an increase in medical levies for employers, and an increase in the property tax rate in municipalities.
Given that most of the expenditure measures are of permanent nature, in absence of consolidating measures, the general government deficit is set to remain at a high rate of 5.4% of GDP also in 2025, based on unchanged policies. The deficit decreases in 2024 due to revenue-increasing measures, such as introduced levy on bank profits or increased medical contributions for employers by 1%. The Commission currently assumes a full phasing out of energy support measures in 2025. The deficits in 2024 and 2025 are also driven by postponed delivery of military equipment.
After decreasing to 56.0% in 2023, the government debt-to-GDP ratio is projected to increase to 58.5% in 2024 and to 59.9% in 2025. This increase is driven by high deficits in 2024 and 2025, partly offset by a strong growth of nominal GDP.