SK: Trade war as a threat to growth

The Statistical Office confirmed its flash estimate for 4Q 2024, with the Slovak economy growing by 1.8% year-on-year (0.5% compared to the previous quarter, seasonally adjusted). For the full year, GDP growth was confirmed at 2%.

Looking at the last three months of 2024, the key drivers of economic activity were unsurprising. The most important positive factor was inventory changes, followed by strong household consumption (+2.7% y/y). Moreover, government consumption also made a significant contribution to growth, rising by more than 2% y/y. On the other hand, investment activity declined sharply, falling by more than 11% compared to the previous year, as the previous EU funding period ended, inflows from the NextGen fund were insufficient to replace the missing resources and investment activity in private sector remained subdued. Foreign demand had minor impact on GDP growth, with both exports and imports stagnating.

For the full-year results, the breakdown of growth drivers was very similar. The economy was supported by inventory creation and household consumption. However, on an annual basis, import growth was noticeably higher than export growth, leading to a significantly negative contribution from foreign demand.

For the next two years, we have revised our growth forecast downward by half a percentage point to 2% due to fiscal consolidation, which could result in lower consumption and weaker investment activity. Household consumption and inventory creation are expected to provide a positive boost again. However, due to consolidation efforts, government consumption could turn negative. A slight rebound in investment activity is expected.

Currently, we see significant risks arising from tensions in international trade. The threat of tariffs and a trade war creates substantial uncertainty for the business environment and economic forecasts. Further actions by the U.S. president and the EU will be key to economic activity, especially for the Slovak economy, as exports and trademost notably in the automotive sectorsupport thousands of jobs. We are closely monitoring geopolitical developments and policy decisions in the United States, continuously reassessing the impact of introduced measures. At this moment, we can state with certainty that disruptions in global trade will negatively affect the Slovak economy and weigh on GDP growth. To quantify the extent of the negative impact, concrete measures from both sides of the trade conflict must first be clarified.