Slovakia: Good year for automotive, rough one for budget

Some rebound in economic activity is expected. ECB awaits further data.

Bond spread remains wide. Slight weakening of Dollar expected. In 2023, the Slovak economy grew by 1.1% y/y, primarily supported by the outstanding performance of foreign trade. Taking a closer look, the main driver was the automotive industry, which not only saw excellent production figures, but also promising long-term prospects. Following Volvo's investment in Košice, new battery plants and production lines for electric vehicles have been announced.

Additionally, EU funding was an important source of growth. Price growth in Slovakia decreased from a high of over 15% in February to below 4% in December. Strong government energy price regulation will continue to play a key role this year, bringing the average inflation to 3%. However, core inflationary pressures are still anticipated, due to the tight labor market. Despite promises from the Ministry of Finance regarding a credible consolidation plan, the promise has not yet been fulfilled.

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