Slovakia’s economic outlook revised to negative at S&P

Investing.com -- S&P Global Ratings has revised its outlook for Slovakia to negative from stable due to increasing economic risks, particularly from global trade tensions. The ratings agency affirmed its ’A+/A-1’ long- and short-term foreign and local currency sovereign credit ratings on Slovakia on April 25, 2025.

The negative outlook reflects the risk that global trade tensions could negatively impact Slovakia’s medium-term growth. The country’s economy, highly dependent on exports, particularly from its automotive industry, could face challenges in its government’s efforts to reduce its fiscal deficit and debt ratio.

A downside scenario could see ratings lowered in the next 12-24 months if Slovakia’s economy weakens more than currently projected, particularly due to pressures on its automotive industry. This could lead to higher fiscal deficits and debt ratios, particularly in a context of receding nominal GDP growth.

On the other hand, the outlook could be revised to stable if the economic and fiscal impact of global trade tensions remains contained, and the Slovak economy proves adaptable to structural challenges. Continued effectiveness of institutions and governance, which is crucial for continued EU fund disbursements, could support the ratings at the current level.

Slovakia’s export-oriented and automotive-heavy industry risks being affected by global trade tensions. This could hinder Slovakia’s fiscal consolidation effort, as lower growth in the coming two to three years could result in lower government revenue, while new spending pressures could emerge.

The country’s economy could suffer from U.S. tariffs, as Slovakia’s exposure to the U.S. is among the highest in Europe. The majority of these exports are cars, and so Slovakia will be impacted by the U.S. announcement of a 25% tariff on car imports and 10% general tariffs on the EU.

The Slovak government has embarked on an ambitious fiscal consolidation. So far in 2025, the government has raised the value-added tax (VAT) and introduced a new financial transactions tax, among several other measures. For 2026, it is anticipated that the government will introduce another sizable consolidation package, with measures to be decided over the coming months.

S&P Global Ratings has lowered its GDP growth projection for 2025-2026 to just over 1%. Tariffs and related uncertainty add to headwinds from subdued external demand and fiscal consolidation. The implementation of EU-funded investment will be a key growth driver over the next two years.

Despite the increased risks, Slovakia’s economy has weathered multiple shocks in recent years while still posting moderate external leverage and low government funding costs, with eurozone membership also benefitting the rating.

S&P Global Ratings projects Slovakia’s economy to expand by 1.5% on average in 2025-2026, down from a previous projection of over 2.0%. Slovakia’s automotive-heavy economy is vulnerable to U.S. tariffs, and the associated uncertainty detracts from external demand and consumption that is already subdued.

The government’s rhetoric regarding the Russia-Ukraine war has sparked controversy domestically and with its European partners. However, despite controversies, Slovakia’s foreign policy will remain anchored within its Euro-Atlantic integration.

S&P Global Ratings expects Slovakia’s fiscal deficit to decrease to 4.7% of GDP in 2025 from 5.3% in 2024, and decline further to 3.5% by 2028. Government debt, net of liquid assets, is set to rise to 57% of GDP by 2028, while government funding conditions remain relatively favorable.

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