Slovakia's Current Account Deficit and the Hunt for Undervalued Assets in Central Europe

Slovakia's current account deficit has emerged as a focal point for investors seeking undervalued assets in Central Europe. While the country's economic fundamentals remain resilient—anchored by its role as a manufacturing hub for automotive and industrial goods—recent macroeconomic imbalances present a unique opportunity to identify mispriced assets. This article dissects the drivers of Slovakia's current account deficit, evaluates its implications for regional investment strategies, and highlights sectors where undervaluation may persist.

The Deficit: A Window into Structural Shifts

Slovakia's current account deficit widened sharply in Q2 2025, reversing a modest surplus in the prior year. By April 2025, the deficit had ballooned to €458.9 million, driven by a goods account shortfall of €160.6 million (a reversal from a €119.4 million surplus in April 2024) and a widening primary income deficit of €274.3 million. These trends reflect broader challenges: export competitiveness has eroded due to global trade restrictions, while domestic demand remains constrained by fiscal consolidation efforts.

The services sector, though still in surplus, has also contracted. A narrowing services surplus—from €61.4 million in April 2024 to €39.9 million in April 2025—highlights vulnerabilities in tourism and business services. Meanwhile, rising outflows in primary income (linked to foreign direct investment returns) and secondary income (remittances and transfers) underscore Slovakia's reliance on external capital to fund its deficits.

Central Europe's Macroeconomic Imbalances: A Regional Opportunity

Slovakia's struggles are emblematic of broader trends in Central Europe. The Euro area's current account surplus in May 2025 (€32 billion) masked divergent regional performances: Germany and the Netherlands posted robust surpluses, while Romania and Greece faced significant deficits. Within this context, Slovakia's deficit—while concerning—positions it as a potential haven for undervalued assets in a region where capital flows are increasingly fragmented.

The key lies in identifying sectors where short-term underperformance masks long-term potential. For instance, Slovakia's automotive industry—a cornerstone of its economy—has seen production volumes dip due to supply chain bottlenecks and reduced European demand. Yet, leading manufacturers like Škoda Auto Slovakia and Magna Steyr remain attractively valued relative to their European peers.

Undervalued Assets: Where to Look

1. Renewable Energy Infrastructure
   Slovakia's energy transition is underfunded despite its strategic location between Germany and Hungary. The government's €2.3 billion green energy plan has drawn limited private investment, creating opportunities in solar and wind projects. Companies like Slovenské elektrárne (SE) are trading at a discount to their European counterparts, offering exposure to a sector poised for growth.

2. Small-Cap Industrial Firms
   Smaller manufacturing firms in Slovakia—such as those in the metalworking and machinery sectors—have been hit hardest by the goods account deficit. However, many of these companies boast strong balance sheets and niche market positions. For example, ZTS Slovensko, a producer of railway components, trades at 0.8x book value despite securing long-term contracts with EU rail modernization programs.

3. Commercial Real Estate in Secondary Cities
   While Bratislava's real estate market has cooled, secondary cities like Košice and Prešov remain undervalued. Industrial properties in these areas are trading at a 20–30% discount to German equivalents, supported by EU subsidies for regional development.

Risk Mitigation and Strategic Entry Points

Investors must hedge against currency and geopolitical risks. The euro's strength against the Hungarian forint and Polish zloty offers a natural hedge for Slovak-based assets. Additionally, Slovakia's membership in the EU and its stable political environment provide a buffer against regional volatility.

A tactical approach would involve dollar-cost averaging into undervalued sectors over the next 6–12 months, as the ECB's tightening cycle stabilizes capital flows. Investors should also monitor the June 2025 Eurostat release for updated data on Slovakia's trade balance, which may signal turning points in the deficit trajectory.

Conclusion: A Contrarian Play in a Fragmented Market

Slovakia's current account deficit is not a death knell for its economy but a signal of structural rebalancing. For investors with a long-term horizon, the country's undervalued assets in renewable energy, industrial manufacturing, and real estate represent compelling opportunities. By leveraging macroeconomic imbalances in Central Europe, investors can position themselves to capitalize on Slovakia's eventual recovery—and the region's broader shift toward sustainable growth.

In a market where consensus often overreacts to short-term data, patience and sector-specific insights will separate winners from losers. Slovakia's deficit may yet be the key to unlocking the region's next big investment story.