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This commentary from the Institute of Economic Research of the Slovak Academy of Sciences (IER SAS) presents the spring macroeconomic forecast of the Slovak economy for the period 2025 to 2029. It is part of a regular output aimed at providing the broader public with an outlook on the expected development of key macroeconomic indicators of the Slovak economy. It also includes an overview of forecasts by selected institutions specializing in this field. The forecast presented below was produced using a macroeconometric model developed specifically for this purpose at the IER SAS.

Main findings

§ The projected real GDP growth for 2025–2026 is significantly lower compared to predictions from other relevant institutions.

§ GDP growth in 2025 and 2026 will likely not reach 1.5%.

§ For 2025 and 2026, inflation is expected to accelerate, primarily due to the implementation of adopted fiscal consolidation measures.

§ Higher GDP growth is heavily dependent on drawing EU funds—in the short term from the Recovery and Resilience Plan, and in the medium term from the Slovakia Programme. Failure to utilize these funds poses a risk to GDP growth.

Author’s comment 

GDP growth is expected to slow to 1.3% in 2025, mainly due to negative developments abroad, particularly the structural problems in Germany’s industry and uncertainty tied to a trade war involving the U.S. Since the final scope of tariffs was not established at the time of projection, the forecast incorporated the communicated objectives, which reflected a negative outlook. Consumer demand will also contribute less to GDP growth compared to 2024, being pressured by consolidation measures. Additionally, announcements of a new wave of consolidation (even without knowledge of its specific structure) are discouraging households from increasing consumption, leading to more conservative spending behavior. On the expenditure side, households face a higher VAT rate, and on the income side, cuts to child tax bonuses. Besides the VAT hike, inflation will rise to 4.0% due to increasing prices for food and services. Final prices are also affected by rising corporate costs tied to a new financial transaction tax and a corporate income tax hike. Although discussions on adjusting the transaction tax had begun at the time of the forecast, no concrete changes had been proposed. Investment activity under the Recovery and Resilience Plan is expected to support the economy in 2025, especially in the second half of the year. The labor market remains resilient, largely due to labor shortages. The unemployment rate will remain at historical lows. Strong nominal wage growth (above 5%) is driven by the tight labor market and actual as well as expected inflation.

In 2026, foreign demand will remain subdued as some tariffs will still be in effect, and global trade will only gradually adapt to the new conditions. Export growth will hover just above zero for the third consecutive year. The forecast assumes that universal household energy subsidies will begin to phase out, in line with the

government's commitment to replace them with more targeted support. As energy prices return to market-based levels, regulated prices will rise, keeping inflation at 3.5% in 2026, and likely reducing household savings. Household consumption is expected to pick up slightly as disposable income begins to recover following the initial consolidation shock (e.g., reduced child tax bonuses, temporary loss of parental pension benefits). Some employees from export-oriented firms will leave the labor market due to order shortages but will be partly absorbed by demand from Recovery Plan-related projects. The decline in employment will be modest. Real wages are expected to grow slightly above real productivity, helping compensate for previous years’ losses due to high inflation.

In the years 2027 to 2029, the international situation is expected to stabilize. A more pronounced boost to export growth is anticipated in 2027, driven by the launch of new automotive production capacity (Volvo). After Recovery Plan funds run out in 2027, funding will shift to the new EU programming period.From 2027 onward, more significant negative effects on employment are expected due to a declining working-age population, despite stable domestic and foreign demand.

Forecast Risks

Escalation of the trade war may lead to a sharper increase in tariffs between the USA and China. Reciprocal tariffs between the EU and the USA may further restrict overseas trade and cause a recession in international trade. A potential positive risk for 2025, on the other hand, is stockpiling in advance of tariff implementation or during any delay in the enforcement of such measures. Failure to draw on certain programs under the Recovery and Resilience Plan could result in an investment gap and a permanent loss of resources, negatively affecting economic growth—although the government has already undertaken a revision of the Recovery and Resilience Plan to avoid this. An EU fiscal stimulus for military armament—specifically in Germany (as one of the EU's largest defense manufacturers)—could significantly dampen the negative sentiment spreading across Europe. For Slovakia, this presents an opportunity to boost economic growth through increased production in the defense sector.

Text: Miroslav Kľúčik a Tomáš Miklošovič, Ekonomický ústav SAV, v. v. i.

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