High energy prices drag down European economy; Slovakia faces stagflation

The European economy is grappling with a slowdown, exacerbated by soaring energy prices and geopolitical instability. The European Commission has revised its growth forecasts downward, warning of a significant energy shock stemming from the conflict in the Middle East. This situation is particularly concerning for Slovakia, which faces the risk of stagflation.

The Commission's spring economic forecast projects a slower GDP growth for the EU, now estimated at 1.1% for 2026, a decrease from previous expectations. The eurozone is expected to grow by only 0.9%. The conflict, triggered by an attack on Iran, has led to a sharp increase in oil and gas prices, pushing inflation up across the continent. The overall EU inflation is expected to average 3.1% this year. Economic sentiment indicators, such as the PMI, have fallen to a 31-month low, signaling a potential recession.

For Slovakia, the outlook is particularly bleak, with the economy practically stagnating at a projected 0.8% GDP growth in 2026. This is a significant downgrade from earlier recommendations that anticipated growth fueled by reforms and recovery plan investments. Private consumption is expected to weaken due to ongoing fiscal consolidation and the impact of the energy crisis. While investments may see some growth from EU funds and defense spending, net exports are projected to remain only slightly positive amidst global uncertainty and challenges within the Slovak industry.

Inflation in Slovakia is also expected to remain high, at 4.3% in 2026, primarily driven by energy costs, before potentially falling to 3.2% in 2027. The unemployment rate is forecast to slightly increase to 5.7%. The article points to the country's "unmanaged consolidation" as a key factor hindering economic progress, contrasting it with previous EU Council recommendations that advised limiting state net expenditure growth and phasing out untargeted energy subsidies.