Slovakia

Challenges from trade and inflation, boost from EU funds

In 2025, Slovakia’s economic growth is projected to moderate, primarily due to fiscal consolidation measures and the rebuilding of private savings following the frontloading of household expenditure ahead of the VAT increase. Additionally, Slovakia is expected to be among the region’s most adversely impacted countries as a result of ongoing global trade tensions. The introduction by the US administration of significantly higher tariffs on the automotive sector - set at 25% - poses a particular challenge given Slovakia’s heavy reliance on automotive exports. This development is anticipated to result in one of the highest effective tariff rates within the European Union. While direct exports to the US account for only approximately 3.5% of GDP, the indirect effects - particularly through reduced demand from Germany - are expected to be considerably more pronounced, exerting downward pressure on external demand. On a more positive note, public investment is forecasted to receive a substantial boost from EU funding, which is estimated at around 2.8% of GDP. The primary source of these inflows will be the Recovery and Resilience Facility. Assuming no further escalation in trade disputes, economic growth is expected to rebound in 2026. This recovery will be underpinned by peak absorption of EU funds (approximately 3% of GDP) and a revival in external demand, particularly as the effects of increased fiscal spending in Germany begin to take hold.

Inflation in Slovakia is projected to undergo a temporary uptick this year, primarily driven by recent tax policy changes, including adjustments to VAT rates, which have increased costs for various goods and services. Additionally, elevated prices in the services sector and administered items, such as postal charges and administrative fees, are adding to the inflationary pressure in 2025. Looking ahead to 2026, inflation is expected to ease as these temporary factors diminish, supported by more stable wage growth and a leveling-off commodity prices on the global market. The anticipated decline reflects a return to more moderate price dynamics, with consumer spending expected to adjust following last year's frontloading of purchases in the run-up to price hikes. However, the inflation outlook remains vulnerable to uncertainty surrounding the pegging of household energy prices to market levels, which could push inflation higher than forecast if it actually materialises.

Gradual fiscal consolidation

In 2025 and 2026, Slovakia's fiscal situation is expected to improve gradually on back of government measures to narrow the public deficit, which is projected to decrease from 5.9% of GDP in 2024 to around 4.9% in 2025 and 3.9% in 2026. This will bring the public deficit within sight of the European Commission’s target of 3.0% by 2027 under the excessive deficit procedure. On the revenue side, a recently introduced consolidation package includes significant tax hikes, such as a VAT increase from 20% to 23%, a hike in corporate income tax (CIT) from 21% to 22% for entities posting recording income of above EUR 5 million, and a 0.35% financial transaction tax (capped at EUR 30 per transaction). These measures are expected to bolster budget revenues. On the expenditure side, lower energy prices are anticipated to reduce the need for energy compensation measures, further supporting fiscal consolidation. However, challenges persist due to an unfavourable interest-growth differential and weak economic growth, which may limit additional revenue increases and potentially curb the pace of the deficit reduction in 2025.

Slovakia's trade balance is expected to face challenges in the near term, with the trade deficit projected to widen this year due to weaker foreign demand driven by ongoing trade wars and sluggish economic growth in the eurozone. The import bill will grow moderately, on the one hand, subdued by weak private consumption, but, on the other, it will be offset by the import-intensive nature of increased military equipment procurement. Looking ahead, an anticipated improvement in foreign demand in 2026, bolstered by fiscal stimulus in Germany, is expected to slightly narrow the trade deficit, offering some relief to Slovakia's external trade position.

Slovakia’s political divide widens

Slovakia’s politics are characterised by significant volatility and deepening polarisation, driven by the actions of Prime Minister Robert Fico’s coalition government, formed by his Smer-SD (left-wing nationalist), Hlas-SD parties (social-democratic populist) and the nationalist Slovak National Party (SNS). Fico, who returned to power in 2023, has pursued a controversial pro-Russian foreign policy, exemplified by his high-profile visit to Moscow and vocal opposition to military aid for Ukraine. Public discontent manifested in large-scale protests at the beginning of 2025, with approximately 60,000 people taking to the streets in the capital Bratislava alone to oppose Fico’s eastward tilt and what critics describe as creeping authoritarianism. The government’s legislative agenda, including reforms to public broadcaster RTVS to increase state control and measures targeting NGOs critical of the administration, has drawn sharp criticism from the EU and international watchdogs. Fico successfully restored his coalition's parliamentary majority in March 2025 after some late 2024 defections among Hlas and SNS MPs. Following agreements with defecting lawmakers, in which two were appointed to lead the Investment Ministry and a third as Tourism and Sports Minister, Fico secured a stable 79-seat majority in the 150-seat parliament. These deals involved replacing rebellious MPs with government-loyal members, resolving internal conflicts and legislative deadlock. The opposition remains fragmented, with parties like PS, SaS, and KDH struggling to coalesce around a unified platform, which complicates their ability to capitalise on the government’s weaknesses.

Looking ahead, Slovakia’s political trajectory remains uncertain. If Fico’s coalition survives, it may double down on its nationalist and illiberal policies, further straining relations with the EU and risking sanctions or reduced access to EU funds, which are critical for its economic recovery. Ongoing public protests and potential labour unrest, particularly in the face of mounting economic pressure from trade tensions and inflation, could erode the government’s legitimacy. Conversely, if snap elections occur, the opposition faces the challenge of forming a stable government in a deeply divided political landscape. Progressive Slovakia, which is polling strongly among pro-EU voters, may struggle to bridge the divide with more conservative or centrist parties, potentially leading to a hung parliament or another unstable coalition. The nationalist and populist undercurrents, amplified by SNS and smaller far-right groups like Republika, are likely to persist, capitalising on rural and working-class frustrations with economic inequality and cultural shifts. The broader societal split between pro-European and nationalist factions will continue to shape public discourse, with issues like EU funding, energy policy, and alignment in the Russia-Ukraine conflict serving as key battlegrounds. Geopolitically, Slovakia’s position within the EU and NATO will remain a flashpoint, with Fico’s rhetoric and policies testing the country’s Western alliances.

Last updated: June 2025