Trade wars, the situation in Ukraine, geo-economic fragmentation, the slowdown of key EU economies, and slow (geo)political resolution and action, also caused by the internal fragmentation of the EU itself, are the key macro drivers of the current dynamic international situation.
The German economy, on which Slovakia is heavily dependent, is stagnating for the third year in a row. The export sector is under pressure from high energy prices, green transition and demographic changes. The deindustrialisation process that awaits Germany may have uncertain outcomes. Similarly, the EU’s second-largest economy, France, has been warned that it is heading for an economic crisis due to its failure to reduce its deficit.
The National Bank of Slovakia reported at the end of 2024 that Slovak exports are lagging behind expectations, while the pace of the German economy is also holding Slovakia back. However, the outlook for the next few years is not positive unless Germany changes its economic model. This concerns the key automotive sector. While Goldman Sachs has downgraded European car companies, the European Commission is launching a strategic dialogue on the future of the European car industry. Although only three countries (Germany, Italy and Ireland) account for 55% of the EU’s exports to the US, US tariffs on car imports would pose a problem for German carmakers and, consequently, for the car industry in Slovakia. The Financial Policy Institute claims that demand from the US generates around 2.4% of Slovak GDP and 70 000 jobs. In the case of car manufacturers, this represents 10% of value added and 9 000 jobs, which are tied to US demand. Introducing particularly high tariffs on cars could, therefore, represent a significant negative shock for Slovakia.
World and Slovak trade prospects
The Slovak Chamber of Commerce and Industry estimates that the first half of this year will be mainly about the effects of the consolidation package – VAT rates, transaction tax and the associated rise in inflation, while the development of foreign trade is also likely to be negative.
The Council for Fiscal Responsibility expects Slovak exports to grow by 3.3% in 2025, 3.2% in 2026, 3.2% in 2027 and 3% in 2028, defining weaker external demand (China, Germany), trade wars, the ability to draw down the Recovery and Resilience Plan and the weakening competitiveness of the domestic economy, lack of innovation and demographic developments as the main risks.
Regarding the territorial structure of Slovakia’s foreign trade, there have been no significant changes since 2019, as Council of Slovak Exporters has been pointing out for a long time. The share of Slovakia’s foreign trade with the EU remains stable, with exports heavily concentrated in EU markets. There have been no significant changes in terms of commodity structure either. Automobiles remain the most important export component, with their share in Slovakia’s total exports still slightly increasing. In 2023, 20% of Slovakia’s exports go to Germany, with cars, trucks and parts accounting for almost 40%.
Regarding investment, up to 93% comes from EU countries, the UK and the US. The Association of Industrial and Transport Associations points out that neighbouring countries offer a more stable and favourable business environment. Moreover, the Central Eastern Europe region stands out in the common feature of a high economic openness index. The Baltic and V4 countries have high volumes of exports to GDP. Slovakia is the 8th most open economy in the world. Thus, the common goal of this area may lie not only in security but also in preserving trade liberalisation on the basis of mutually beneficial free trade agreements at the EU level.
What are the answers?
Back in 2022, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, set out four priorities in her recommendations to restore confidence in the global system:
1) Reducing trade barriers to alleviate shortages and reduce prices of food and other products, diversifying exports
2) Step up joint efforts to tackle debt
3) Modernising cross-border payments
4) Combating climate change (green transition, investment in renewables)
The need for territorial and commodity diversification of exports needs no further mention. We just need to take a look at the growth forecasts of economies around the world. For 2025, the World Bank estimates the highest annual GDP growth in South Asia (6.2%), East Asia (4.6%), sub-Saharan Africa (4.1%) and the Middle East (3.4%), while Western Europe and the US are expected to grow by 1.7%. Within countries according to the IMF, the highest percentage growth is expected in countries such as South Sudan (27%), Guyana (14.4%), Libya (13.7%) and Senegal (9.3%).
A February study from the Boston Consulting Group predicts that global trade is undergoing fundamental changes. North America is reducing its dependence on China, China is strengthening its relationships with emerging markets, and the global South is playing an increasing role in supply chains and manufacturing. Driven by dynamic countries such as India and Southeast Asia, the Global South will become a growing force in world trade as developing countries improve their capabilities and move up the industrial ladder.
On a positive note, 2025 has got underway with several business missions at multiple state levels. Although the Prime Minister is announcing more trips to Central Asia, the Middle East and Vietnam, and last year we saw an increase in the number of economic diplomats from 17 to 43, the Czech Republic, for example, is one step ahead and is already looking for specific diplomats for its embassies, such as innovation or agrarian diplomats to Beijing and Washington. The Czech Republic also reported a record foreign trade balance last year, when it surpassed the CZK 200 billion mark for the first time in its history. Czech exports are thus being redirected to new markets, while the share of exports to Germany and Austria is declining. The Scandinavian countries also started a territorial shift of embassies from Europe to Africa and South-East Asia 10 years ago. Slovakia, therefore, needs to do more, focus on new, dynamic markets, adapt its economy to new trends and attract capital from the regions where they have it.
Inspiration could come from Italy or France in their recent moves to attract investment from Arab countries. In late February, Italy struck a $40 billion deal with the United Arab Emirates, “one of the largest foreign investments in Italy’s history.” The deal is intended to revitalise the Italian economy and strengthen its position as a key player in sectors such as energy, artificial intelligence, telecommunications and defence. In January, Italy also signed agreements with Saudi Arabia worth around $10 billion in a strengthening of the strategic partnership, focusing on areas including infrastructure, energy, defence, sports and tourism. Also, France has recently attracted investment from the United Arab Emirates, which plans to invest between €30bn and €50bn in the construction of a huge AI data centre in France.
Finally, a key point for investments is their subsequent security. Last year’s academic study underlines the importance of a country’s NATO membership for trade flows, reveals the economic benefits of enlargement and warns of the negative consequences of a break-up or weakening of the alliance.
Opportunities
However, we can still excel in our region if we focus on our strengths, such as nuclear power or the potential to transform the automotive industry. According to the World Bank’s latest regular economic report on the EU, exports of clean energy technologies (heat pumps, solar panels, batteries for electric vehicles, wind turbines) from Central and Eastern Europe (in particular Croatia, Bulgaria, Romania and Poland) could triple in the coming years.
Another opportunity is the reconstruction of Ukraine, which needs $524 billion for post-war reconstruction, with housing, transport, energy, trade and education being the most affected sectors. Similarly, the reconstruction of Gaza will cost $52 billion, which will include the housing sector, industry, critical infrastructure such as health, transport and water.
Although the initial negative starting points look pessimistic, every negative moment can also represent an opportunity. However, this opportunity needs to be correctly identified and seized. A bottom-up approach requires a thorough understanding of the needs of our exporters, i.e. listening and mapping the current situation. Secondly, it is a professional service of the state that provides quality, fast and targeted professional service to exporters. Thus, within this setup and synergy would come the third step – planning, adapting or anticipating and assessing emerging risks and opportunities from the current ongoing geopolitical and geo-economic trends and setting appropriate policies.
Author: Filip Šandor, Faculty of Natural Sciences, Comenius University Bratislava, EXPORT ANALYTICA
