Slovakia Economic Outlook
GDP was up 1.5% year on year in Q2 (Q1: +1.0% yoy). Growth in the quarter therefore exceeded the Euro area average, but remained below the 2.3% average growth seen in the past decade. Exports rebounded, aided by strong automobile production amid easing supply bottlenecks. Less positively, private spending fell more than in the prior quarter: Inflation likely continued to outpace wage growth in Q2, weighing on household purchasing power amid lower levels of savings compared to prior quarters. In other news, former Prime Minister Robert Fico has maintained his lead in opinion polls for the 30 September general elections. If elected, Fico would likely spend heavily to support families, pensioners and workers, probably straining the fiscal balance but boosting domestic demand.
Harmonized inflation moderated to 9.6% in August (July: 10.3%) due to lower price pressures for food. Average inflation should moderate further for the rest of 2023 before cooling to slightly more than double the ECB’s 2.0% target in 2024. Rising commodity prices are an upside risk, while weaker-than-expected demand is a downside risk.