SK: Consumption remains a driver of GDP growth

Instant Comment , 14. Nov.
The growth of GDP slowed down

The Slovak economy grew by 1.2% year-on-year in the third quarter of this year, according to the flash estimate of the Statistical Office of the Slovak Republic. This growth rate was below our expectations and the market consensus. It was also the slowest economic growth rate in the last six quarters. On a quarterly basis, seasonally adjusted GDP increased by 0.3% (compared to 0.4% q/q in 2Q24).

As this is a flash estimate, we do not yet have a detailed breakdown of the figure. However, the press release from the Statistical Office indicated that the main drivers of economic activity were household consumption and government consumption, although both showed a significant weakening in momentum. On the contrary, the economy's performance was slowed by a year-on-year decline in investment activity.

Employment decreased slightly by 0.1% year-on-year in the third quarter of 2024. After seasonal adjustment, the number of employed individuals remained at the same level both year-on-year and quarter-on-quarter (compared to the second quarter of 2024).

This year began with strong economic momentum, continuing on a growth trajectory in the second quarter. A rebound in household consumption, supported by a strong labor market and wage growth, has been the most important factor driving economic growth this year. Investment activity, fueled by NextGen funds, may also provide a positive boost, though its impact will depend on various factors, such as the effectiveness of its implementation. On the other hand, external challenges could partly limit Slovakia's economic growth in the coming quarters. We remain cautious about the threat of increased protectionist measures and trade wars, as Slovakia is a small and open economy. For 2024, we forecast GDP growth to reach 2.2%, but a slight adjustment cannot be ruled out after the release of detailed data.

Cost-increasing measures for companies, stemming from consolidation efforts announced by the government a few weeks ago, are expected to negatively impact investment activity and GDP growth in the coming years. Due to these consolidation efforts, GDP could weaken by half a percentage point in each of the next two years, as reduced consumption and investment activity may dampen growth over a longer horizon. The pressure on corporate budgets will also affect the ability to raise wages, although a relatively tight labor market will still favor employees. For 2025, we forecast GDP growth to reach 2.0%, and in 2026, we expect Slovak GDP growth to remain at a similar level.