Challenges ahead of Slovakia

Economy continues to grow.
Too early for interest rate cuts.
Rating downgrade for Slovakia.
Dollar should weaken further.

Erste Bank Research Team Erste Bank

In 2023, economic activity faced challenges from elevated inflation, resulting in a decline in real wages and worsening credit conditions. In contrast to the previous year, household consumption experienced a decline in real terms. Investment activity fell short, indicating challenges in drawing EU funds. Surprisingly, the most significant contributor was foreign trade, primarily boosted by the car industry. Looking ahead to 2024, we anticipate a rebound in household consumption and ongoing investment activity. A positive impetus could also come from a pickup in foreign demand. GDP growth could reach 2% with upside risks, due to lower energy prices.

Slovakia experienced disinflation in 2023, with the sharp decrease mainly due to a base effect. Despite an expected average price growth of 4% in 2024 (down from around 11% in 2022), core inflation pressures are anticipated, due to factors such as the tight labor market. The government's budget for 2024 focuses on income-side measures, with little expenditure reduction, including costly social initiatives. Fitch downgraded Slovakia's rating, emphasizing the need for fiscal consolidation and structural reforms for long-term growth.

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Erste Bank Research Team

Erste Bank

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