GDP growth hits highest rate in two years in Q1

A second national accounts release confirmed that the economy surged in the first quarter, expanding 2.7% year on year (Q4 2023: +2.2% yoy). The reading marked the fastest growth since Q1 2022 and was among the strongest in the Euro area. On a seasonally adjusted quarter-on-quarter basis, economic growth sped up to 0.7% in Q1 compared to the previous quarter's 0.6%, marking the strongest increase since Q2 2023. That said, the result fell short of the preliminary estimate of 0.9%.

Domestically, the annual upturn chiefly reflected a rebound in private spending, which rose 3.6% year on year in the first quarter (Q4 2023: -3.0% yoy) and marked the best reading since Q4 2022. Inflation halved in the three months to March, supporting household budgets. In addition, public expenditure hit a near three-year high of 6.5% in the first quarter, up from the fourth quarter's 1.7%. That said, fixed investment growth fell to 1.7% in Q1 (Q4 2023: +13.1% yoy), marking the worst result since Q2 2022. On the external front, exports of goods and services bounced back, posting a 1.8% increase on an annual basis in the first quarter, which was above the fourth quarter's 1.3% contraction. In addition, imports of goods and services rebounded, growing 2.9% in Q1 (Q4 2023: -6.1% yoy) and marking the best reading since Q4 2022. As a result, net trade added to overall growth in January–March.

Our panel expects the economy to be losing steam in the second quarter. That said, our Consensus is for growth to accelerate in 2024 as a whole from 2023, approaching the prior decade’s average of 2.4%. Receding price pressures, continued nominal wage growth and monetary policy easing should drive a rebound in private spending. This, paired with recovering exports and stronger public spending growth, will support the economy this year.

Marian Kocis, analyst at Erste Bank, commented: “The Slovak economy has started the new year with relatively strong momentum. After a year-long decline in household consumption, there seems to be a revival in this most important component of economic performance. Additionally, this year should see a continued positive impulse from the drawdown of European funds, especially the Recovery Plan. A visible rebound of foreign trade will come hand-in-hand with the rising activity in the most important trade economies, especially Germany, which we expect in the second half of the year.”

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