OECD Economic Surveys: Slovak Republic 2026

Medium-term fiscal consolidation should give priority to spending cuts that can preserve or enhance growth prospects. Energy subsidies impose a significant burden on the budget, distort economic choices and discourage energy-efficiency efforts. Pension reforms can bring in savings while prolonging working lives in support of growth. Moreover, relying more on user fees to fund the operational expenses of transport operators would reduce public spending.

There is nonetheless also scope to raise revenue from less distortionary taxes. Reduced VAT rates on specific products cost 1.4% of GDP per year to the public purse. The social objectives pursued by these reduced rates could be achieved at much lower cost through targeted transfers while applying the standard rate to all products. Recurring property taxes yield very low revenue and are difficult to increase in the current system, where they are based on areas rather than market values. There is a strong case for putting in place the necessary tax administration capacity and implementing a market-value based property tax.

Keeping growth robust and public finances sound over the long term in the face of rapid ageing calls for integrating fiscal adjustment with structural reform. Growth and fiscal sustainability would both benefit considerably from higher labour force participation of women, older workers and the Roma. First, for women, reducing the length of parental leave, which is currently among the longest in the OECD, would reduce the risk of detachment from employment after welcoming a child. Adequate provision of childcare is essential to reconcile work and parenthood. The Slovak Republic is expanding kindergarten capacity with a right to enrolment from the age of three. A newly introduced per-enrolled-child funding formula sharpens incentives for municipalities to provide early childhood education.

Second, for older workers, curtailing early retirement pathways is important not only for increasing their participation over the long term but also to avoid the large outflows towards early retirement that occurred after the 2022 pension reform. Third, intensifying education, lifelong learning and other programmes to better integrate the Roma in the labour market can produce macroeconomic benefits in addition to improving social inclusion.

Geoeconomic developments and structural changes pose significant risks for the Slovak Republic and its globally integrated automotive sector. Tackling corruption, reducing administrative burdens and improving the tax system would enhance economic dynamism, raise productivity and foster diversification. Boosting business research and development, attracting FDI and increasing the efficiency of public investment would help advance innovation and technological diffusion, allowing companies and sectors to move-up the value chain by performing more advanced tasks in global supply chains. Better quality and more inclusive education and lifelong learning – including adult upskilling and reskilling – would help further develop human capital and alleviate persistent skills shortages.

Convergence in living standards has slowed in recent years, with real GDP per capita growth falling behind that of regional peers. Changes to the global trading system, technological advances and economic uncertainty pose significant risks for the Slovak growth model that relies on the globally integrated automotive sector. It accounts for around 10% of GDP and is dominated by lower-value-added activities. Productivity spillovers to domestic companies have been weak.

A more dynamic business environment could help diversify the economy and better adapt to global shifts. Yet, several structural barriers impede dynamism and income convergence.

Perceptions of weak judicial independence and corruption undermine investor confidence and economic efficiency. Many companies perceive corruption as widespread, and fast-changing policies as impediments to growth and investment. Shortcomings remain on lobbying regulation, conflict of interest rules and legislation on asset declaration. New rules on public procurement adopted in 2024 may reduce competition and weaken corruption prevention safeguards.

Administrative and regulatory requirements remain cumbersome. Starting a limited liability company involves a large amount of paid-up capital. Substantial barriers complicate entry in services professions. Heavy tax burdens on additional work, as well as uneven capital tax rates deter growth and investment. The introduction of a financial transaction tax (FTT) in 2025 risks diverting companies’ resources from core business activities, reducing market liquidity, spurring informality and raising the relative tax burden compared to neighbouring countries, thereby discouraging investment.

Business investment in research and development (R&D) remains below OECD and regional levels, and foreign direct investment inflows have declined. Improving the business environment and better incentivising private R&D expenditure, including among SMEs, could foster innovation and support knowledge spillovers. Increasing the efficiency of public investment would advance innovation and technological diffusion. Accelerating the absorption of EU funds would help scale up investments meeting well-defined priorities in both conventional and digital infrastructure that are lagging.

Poor development and retention of human capital have led to persistent skills shortages that hamper company expansion and investment. Improving the education system, facilitating lifelong learning, and increasing the use of active labour market policies that focus on re-training and upskilling, as well as facilitating skilled immigration – including the return of Slovaks living abroad – would raise productivity growth.

As a general-purpose technology, AI can enable large productivity gains across the Slovak economy. However, AI use among Slovak companies is lagging while AI research production lies substantially below the OECD average. Improving framework conditions by making it easier for businesses to comply with EU AI regulation and easing access to data while facilitating experimentation will strengthen adoption. Nurturing AI-related skills through higher education and lifelong learning will also be key.

AI adoption is lagging but growing. In 2025, 18% of businesses reported using AI, up from 7% in 2023. As in other countries, AI adoption is more widespread among larger companies and in knowledge-intensive sectors.

Providing technical and legal expertise while facilitating experimentation can broaden AI adoption, especially among small and medium-sized enterprises. Compliance costs with the regulatory framework, which is shaped by the EU AI Act, are potentially high, particularly for firms too small to have in-house legal expertise. Making sure that the recently established Digital Innovation Hubs provide legal as well as technical advice would facilitate AI adoption. It is also important to accelerate the operational implementation of controlled test environments (“sandboxes”), where businesses, including SMEs, can experiment AI use under the supervision of regulators.

Low digital and AI skills limit AI development and adoption. Most Slovak companies reported AI skill shortages in 2024. Strengthening AI skills calls for continuing to promote university, vocational and lifelong-learning programmes to train, reskill and upskill workers in AI-relevant fields during their education and throughout their careers, including through flexible adult learning pathways, individual learning accounts and micro-credentials, and by upgrading the digital and AI skills of teachers and public sector employees.

Broad domestic data availability is essential for AI model training. The comparatively limited spread of AI calls for facilitating access to existing Slovak-language data. Expanding obligations for public institutions to share databases and upgrading the legal and regulatory framework could help companies to access data in ways that simultaneously respect privacy and minimise legal risk.

The Slovak Republic has a strong basis for making the net-zero transition a source of economic strength. Realising this potential while minimising adjustment costs hinges on shifting some of public R&D towards low-carbon technologies, streamlining procedures for low-carbon power projects and raising the price of emissions in sectors where they are underpriced. The Slovak Republic will also have to adapt to the consequences of climate change by mobilising local authorities as well the insurance sector.

A strong manufacturing sector positions the Slovak Republic well for the net-zero transition. The assembly of electric vehicles is expanding fast in Slovakia as is the production of batteries and heat pumps. Future growth in low-carbon technologies would benefit from stronger R&D. The share of public-sector R&D allocated to low-carbon energy technologies, currently among the lowest in the OECD, should be increased, including by giving higher priority to this criterion in project selection.

Ample low-carbon power generation is a valuable asset. Most of Slovakia’s low-carbon electricity comes from nuclear and hydro power plants, which have the advantage of producing power independently of wind and sunshine conditions. Streamlining permitting procedures for low-carbon electricity sources, including by swiftly implementing the simplified procedures adopted in 2025, would support future expansion.

More uniform pricing of greenhouse gas emissions across sectors is needed. Meeting net-zero targets requires a greater fall in emission than anticipated on current policy settings. GHG emissions from buildings currently remain considerably underpriced by comparison with the rest of the economy. It is important in this regard to fully implement the extension of the EU Emissions Trading Scheme (ETS2) to buildings as from 2028.

The Slovak Republic needs to adapt to intensifying consequences of climate change. Average temperatures have already risen by 1.7 degrees over the past one and half centuries. Extreme weather events are foreseen to become more frequent. The national adaptation framework could be strengthened by more formally linking local plans to the national strategy. Incentives for private sector efforts to reduce exposure to climate risks could be sharpened by fostering the development of private insurance against these risks while avoiding creating expectations that the government will regularly compensate households and businesses suffering losses from climate events.

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