Slovakia

Moderate growth, driven by private consumption and public investment

In 2023, growth was anaemic due to weak private consumption, penalised by rising prices that outstripped nominal wage growth. In 2024, disinflation will enable real wages to grow, and households will gradually regain purchasing power. Moreover, while private investment will still be partly hampered by tight lending conditions, European funds will continue to stimulate private and public GFCF. Under the Recovery and Resilience Plan adopted in 2021, Slovakia will benefit from €6.4 billion out to 2026 to support the climate and digital transition. Funds disbursed under the RRP in 2024 are expected to amount to around €2.4 billion, i.e., just under 2% of GDP. As a result, domestic demand will rebound and contribute to growth. However, economic recovery will be gradual, as exports, which improved at the end of 2023 thanks to the easing of supply chains, will remain subject to European demand. The economies of the main trading partners (Germany, Czech Republic, Poland, Hungary) will remain sluggish, which will weigh on their demand for Slovak products. In addition, the automotive industry, Slovakia's main export, will continue to be penalised by high input costs and sluggish orders.

Large twin deficits, financed by Europe

In 2023, public finances deteriorated with the additional payment of social benefits (pensions, family allowances), increases in public wages and the deployment of aid to limit gas prices to below international market levels. The effect of inflation on spending will continue to be felt in 2024, while certain social benefits, such as pensions, will continue to rise, as will healthcare spending. On the other hand, defence will remain on the radar of government policy, despite the fact that incoming Prime Minister Robert Fico has announced the end of military aid to Ukraine. The gradual reduction of temporary energy support measures and a few minor tax reforms will stabilise the deficit, such as increases in the taxation of bank profits and taxes on sugar and tobacco. Once again this year, the deficit will be partly financed by the absorption of European funds. Weak economic growth, combined with a high deficit, will push up public debt to the limit of the eurozone norm of 60% of GDP.

The large drop in imports induced by sluggish household consumption enabled Slovakia to drastically reduce the current account deficit in 2023, but this will no longer be the case in 2024. However, the rebound in exports, which began at the end of 2023, will continue as external demand improves. However, this will be gradual, since growth prospects among partners will remain modest, at least at the start of the year. Imports will rebound further as a result of the upturn in consumption and public investment, such as in energy infrastructure, which will widen the current account deficit.

Populist victory and pro-Russian prime minister

In a country marked by governmental instability and following a campaign punctuated by misinformation, the new three-party coalition took power in October 2023. The coalition holds a narrow Parliamentary majority of 79 seats out of 150, and comprises three parties: Prime Minister Fico's left-wing nationalist Smer-SD (42 seats) is joined by the left-wing Hlas-SD (27 seats) and the far-right ultranationalist SNS (10 seats). Robert Fico is back at the helm of the country after three terms in office since 2006. Pro-Russian and plagued by populism, he built his election campaign using anti-migrant rhetoric at a time when over 100,000 Ukrainians have taken refuge in Slovakia, and on the promise to put an end to military aid to Kiev. He also risks hampering the fight against corruption through a reform plan, the announcement of which already sparked protests in December 2023. The plan includes abolishing the special prosecutor responsible for investigating organised crime, reducing prison sentences for acts of corruption and restrictions on the status of whistleblowers. In 2018, Robert Fico was forced to resign under popular pressure following the murder of investigative journalist Jan Kuciak, who had revealed the government's links with the Italian mafia. The current social-liberal President, Zuzana Caputova, will be replaced during the April 2024 election. While the Presidential role confers only limited power, it does however have a counterbalancing role vis-a-vis the government, notably through the use of its power of veto. The populist-nationalist coalition will try to align its policies with those of its Hungarian neighbour, but opposition to European measures is likely to be timid given the country's heavy dependence on EU funds. Slovakia will also continue to benefit from a European Union exemption allowing it to purchase Russian oil. The country has no refineries adapted to Middle Eastern crude oil and depends on Russia, sourcing its supply via a pipeline. In December 2023, Slovakia was granted a one-year extension, which also enables it to export fuels produced from Russian oil to the Czech Republic.

Last updated: March 2024