RRZ Macroeconomic Forecast: Slovakia's Economy to Grow by 0.8 percent This Year

Bratislava, 29 June (TASR) - Slovakia's economy is set to grow by less than 1 percent for the second consecutive year and is expected to stay well below its potential for the rest of the decade, the Council for Budgetary Responsibility (RRZ) stated in its latest macroeconomic forecast, which expects gross domestic product (GDP) to grow by 0.8 percent this year. The weaker performance is attributed not only to geopolitical headwinds related to the Middle East conflict, but also to the ongoing consolidation of public finances, the impacts of US trade policy, problems in the automotive industry, and the deteriorating competitiveness of Slovak industry. A drop in real disposable household income (adjusted for taxes and levies) will also contribute to the sluggish economic performance. Next year, growth is projected to increase slightly to 1.4 percent, mainly boosted by the launch of production at the carmaker Volvo's plant. Conversely, the completion of the recovery plan and the potentially persisting impacts of the Middle East conflict will continue to slow down the economy. At the same time, RRZ assumes that no consolidation of public finances will take place in the election year. The Finance Ministry shares this view, as it expects GDP to increase by less than 1 percent this year while estimating next year's growth at 1.5 percent of GDP. According to RRZ, the consolidation of public finances will resume between 2028 and 2030 in order to bring the deficit below 3 percent of GDP by 2030. The consolidation effort along with a decline in the workforce will temporarily dampen the economy, though this should be partially offset by a more significant absorption of EU funds and a gradual increase in production at the Volvo plant. Economic growth should therefore remain between 1.3 and 1.8 percent. From 2028, the gradual introduction of emission allowances for households (ETS2) may slightly increase inflation, while the economy will stay below its potential throughout the entire forecast horizon. jrg/mcs