Economy records slowest increase in over two years in Q2

GDP growth far below market estimates: According to a preliminary estimate, GDP growth dropped to 0.4% year on year in the second quarter from 0.9% in Q1, marking the softest expansion since Q4 2022. The reading defied market expectations of an acceleration from Q1 levels. On a seasonally adjusted quarter-on-quarter basis, GDP dropped 0.2% in Q2, contrasting the previous period's 0.2% expansion and marking the largest decrease since Q2 2022.

Exports and inventories likely behind the deceleration: In the absence of a full breakdown, the statistical office cited private consumption and fixed investment as the main growth drivers. That said, the notable deceleration in GDP growth was likely due to a drag from net exports—hampered by U.S. tariffs—and inventory dynamics. A complete breakdown will be released on 5 September.

GDP outlook: Our panelists expect economic growth to regain some steam through H2, as lower inflation plus the ECB’s easing cycle should support private consumption and fixed investment. That said, the outlook is clouded by 15% U.S. tariffs from August and EU-mandated fiscal consolidation. In 2025 as a whole, GDP growth is set to reach its lowest level since the start of the Russia-Ukraine war in 2022. Private consumption is seen losing steam due to laxer labor market conditions and higher inflation compared to 2024. In addition, U.S. tariffs are set to cap the rebound in goods and services exports. Moreover, public spending growth will be constrained by fiscal consolidation under the European Commission’s excessive deficit procedure. That said, Germany’s expansionary fiscal package might have some positive ripple effects on the Slovak economy.

Panelist insight: Commenting on the outlook, Matej Hornak, analyst at Erste Bank, stated: “We will be revising our original full-year growth estimate […] downward. […] One of the key negative impacts will stem from the tariffs imposed by the United States and the associated slowdown in the European economic bloc. This will affect Slovakia’s economic performance directly—through lower exports to the U.S.—and indirectly via weaker demand from other foreign partners. It is therefore no surprise that one of the most affected sectors is industry, which has long struggled with weak demand and will face further challenges due to deteriorated trade relations.”

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