European Commission Warns of Stagnating Economic Growth in Slovakia (2)

Brussels, 21 May (TASR-correspondent) - The European Commission's (EC) spring economic forecast for 2026, published on Thursday, predicts that Slovakia's real GDP growth will remain modest at 0.8 percent in 2026 and will rise to 1.5 percent in 2027, with the Commission noting that economic growth in Slovakia is stagnating due to uncertainty and fiscal consolidation. The Commission stated that domestic demand will remain subdued due to fiscal consolidation and the crisis in the Middle East, while EU funds will support investment. Following the increase in tariffs in 2025, trade activity isn't expected to pick up until 2027. Inflation is projected to reach 4.3 percent in 2026 - a slight increase when compared to 2025. Inflation is expected to stand at a moderate 3.2 percent in 2027. Following last year's subdued rise of 0.8 percent, the European Commission expects real GDP growth to remain unchanged at 0.8 percent in 2026. Private consumption will contribute negatively to growth, which will be held back by fiscal consolidation and the consequences of the conflict in the Middle East. Public and private investment should support growth, and the rate at which EU funds are drawn should remain strong. Net exports showed resilience in 2025 and are expected to contribute positively to growth in 2026. Exports may be constrained during 2026 due to global uncertainty and the exposure of Slovak industry to trade-related geopolitical tensions and growing global competition. Real GDP growth is projected to reach 1.5 percent in 2027, driven by a recovery in private consumption and an increase in the contribution of net exports to growth. Following a recovery in foreign demand, export growth is expected to accelerate again in 2027, supported by the launch of a new automobile manufacturing plant. Public investment is expected to contribute negatively to growth as the recovery plan nears its end. Defence investment and private investment are expected to increase. Private consumption growth is expected to pick up in 2027, although further fiscal consolidation may dampen it. Risks are anticipated due to the conflict in the Middle East. Last year, the unemployment rate reached 5.4 percent. The labour market remains tight, with strong demand for labour in certain sectors, along with a high influx of foreign workers. In 2026, the unemployment rate is projected to rise to 5.7 percent, following a slight loosening of the labour market due to weaker economic activity. Measures increasing the tax burden on labour and planned public sector salary cuts are likely to affect disposable incomes. Salary growth will slow down in 2026, and real salary growth will be slightly negative. It will return to a positive trajectory in 2027. The public deficit fell to 4.5 percent in 2025, mainly as a result of fiscal consolidation measures, including adjustments to VAT and corporate tax rates and the introduction of the financial transaction tax. However, the deficit was lower than expected, partly due to reduced military spending. Meanwhile, the EC projects that the public deficit will rise to 4.6 percent in 2026 and to 5.4 percent in 2027 (assuming no policy changes), meaning that the public debt will maintain an upward trend. This stems mainly from higher public investment in defence and national co-financing of EU-funded projects. The fiscal consolidation strategy for 2026 focuses on a public sector salary freeze and revenue-raising reforms - a more progressive personal income tax system, a 50-percent reduction in the ability to deduct VAT for privately used company vehicles, and a one-off tax amnesty on historical tax arrears. The net fiscal impact of these measures will be mitigated by expenditure measures, notably increases in teachers' salaries and the expansion of energy support programmes. The Commission projects that the government's debt-to-GDP ratio will rise, mainly due to expected deficits, from 61.4 percent in 2025 to 63.7 percent in 2026. It should climb to 66.9 percent in 2027. NOTE: This story has been extended to include the final five paragraphs. am/df