GDP grows at softest pace in over two years in Q2

GDP growth revised upward: A second release upwardly revised up the preliminary estimate by 0.2 percentage points, revealing that GDP increased 0.6% year on year in the second quarter. However, the print was still down from the 0.9% rise in the first quarter and marked the softest expansion since Q4 2022. The deceleration was partly caused by a disrupted inventory cycle. On a seasonally adjusted quarter-on-quarter basis, economic growth gained momentum, accelerating to 0.2% in Q2, following the previous period's 0.1% increase.

Inventory changes drag on GDP, but domestic demand does solidly: The year-on-year GDP growth deceleration was largely driven by fluctuations in inventories. During the second quarter, stock levels fell below what is normally seen for this period, a development that may reflect the combined impact of frontloading ahead of U.S. tariffs and strong household spending. That said, other developments on the domestic front were promising: Private consumption increased 2.0% in Q2 (Q1: +0.5% yoy), bolstered by a lower unemployment rate and an acceleration in wage growth. Moreover, fixed investment bounced back, growing 4.2% in Q2 (Q1: -8.0% yoy), buttressed by the ECB’s interest rate cuts. Finally, public spending growth picked up to 2.2% in Q2 (Q1: +1.2% yoy). On the external side, goods and services exports growth dropped to 3.0% (Q1: +6.2% yoy) as higher U.S. car tariffs—in place since April—hit automotive shipments, which account for about 33% of Slovakia’s total merchandise exports. That said, imports of goods and services growth waned to 2.9% in Q2 (Q1: +8.9% yoy), reducing the drag from weaker exports, leading net exports to contribute positively to annual GDP growth.

GDP growth to hit a three-year low in 2025: Our panel expects GDP growth to regain some traction in H2 vs H1; lower inflation plus the ECB’s easing cycle should support private consumption and fixed investment growth. That said, the outlook is clouded by the 15% U.S. tariffs in place since August, plus the European Commission’s excessive deficit procedure. This stronger end to the year will not be enough to compensate for its weak start. In 2025 as a whole, Slovakia’s economy is expected to grow at the weakest pace since the start of the Russia-Ukraine war in 2022. Private spending growth should lose steam due to a laxer labor market and higher inflation compared to 2024. In addition, U.S. tariffs are set to cap the rebound in goods and services exports. 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: “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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