Economic growth falls to two-year low in Q1

GDP growth wanes in Q1: A second release confirmed that GDP growth lost steam in Q1, falling to 0.9% year on year from 1.7% in the fourth quarter of last year and marking the worst result since Q1 2023. On a seasonally adjusted quarter-on-quarter basis, GDP flatlined in Q1, following the previous period's 0.5% increase and marking the worst reading since Q2 2022.

Slower public and private consumption growth drives the deceleration: Domestically, household spending rose 0.5% in year-on-year terms, deteriorating from the fourth quarter's 3.2% expansion: Political turmoil and higher VAT likely weighed on the reading. Moreover, public consumption growth almost halved to 1.2% (Q4 2024: +2.3% yoy) as the European Commission’s excessive deficit procedure limited government spending. That said, fixed investment contracted 8.0% in Q1, improving from the 11.4% decrease in the prior quarter as the ECB’s interest rate cuts limited the fall. On the external front, exports of goods and services rebounded 6.2% in Q1 (Q4 2024: -0.5% yoy), aided by the front-loading of shipments ahead of U.S. tariffs and by stronger momentum in top trading partner Germany. Similarly, imports of goods and services bounced back 8.9% in Q1 (Q4 2024: -1.1% yoy). As a result, the trade balance remained in the red for the third quarter running.

Economic growth to lose steam: In 2025, our Consensus is for GDP growth to slow for a second straight year. The erosion of real wage growth will continue to squeeze household budgets, while fiscal consolidation will keep a lid on public spending. Meanwhile, deteriorating ties with the EU will likely curb fixed investment. That said, Slovakia’s economic growth is expected to remain solid by Euro area standards.

Panelist insight: Commenting on the outlook, Matej Hornak, analyst at Erste Bank, stated: “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 Slovakia’s 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.”

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