SK: GDP flash estimate for 1Q25 confirmed

The Statistical Office confirmed its flash estimate for 1Q25, with the Slovak economy growing by 0.9% year-on-year (0.2% compared to the previous quarter, seasonally adjusted).

Looking at the breakdown, the key drivers of economic activity were in line with expectations and aligned with the indications provided in the flash estimate press release. The most significant positive factor was inventory creation, followed by slowing household consumption (+0.5% y/y). In addition, government consumption made a modest positive contribution to growth, rising by 1.2% year-on-year. On the downside, investment activity declined sharply for the third consecutive quarter, falling by 8% compared to the same period last year. The inflow of NextGen funds appears to be low, while private sector investment remains subdued due to heightened uncertainty, particularly related to trade. Although both exports and imports recorded strong growth rates, the increase in imports was more pronounced, resulting in a substantial negative contribution to GDP growth.

This year, we anticipate a real GDP growth at 1.8% year-on-year. The main drivers of growth are expected to be household spending and stock accumulation, whereas foreign trade is likely to weigh negatively on the overall performance. The initial downward adjustment of our GDP forecast for 2025from 2.5% to 2.0%followed the announcement of fiscal tightening. In May, we revised our outlook further in response to newly introduced U.S. tariffs. These current projections incorporate only a portion of the potential downside risk, leading us to adopt a cautious stance as political discussions continue.

The uncertainty stemming from tariff threats and the risk of an escalating trade conflict significantly clouds the business climate and economic forecasting. Upcoming decisions from the U.S. administration and the European Union will be pivotal, particularly for Slovakias export-dependent economy. The automotive sector, in particular, supports thousands of jobs and is highly exposed. As such, Slovakia faces not only direct losses from reduced U.S. demand but also indirect effects due to potential slowdowns among key trading partners, notably Germany.

Over a three-year period, elevated car tariffs alone could trim Slovakias GDP growth by approximately 1.5 percentage points. Should broader reciprocal tariffs be implemented, the total negative impact could potentially double, reaching between 2.5 and 3.0 percentage points.