Komerční banka’s Macroeconomic Forecast: Forging Ahead Through Headwinds
The oil shock has affected the Czech economy but has not fundamentally changed its growth prospects. The new forecast envisages much softer impacts caused by more expensive crude and by energy prices higher than they were during the energy crisis in 2022 and 2023. The country’s economy is better prepared for such shocks, among other things thanks to the gradually declining energy intensity of production and ongoing structural changes in the economy. Internal demand continues to work as strong support for the economy. This year, household consumption should rise by 3.1% and fixed investments by 4.7%.
“The Czech economy is holding out surprisingly well in an environment of increased geopolitical uncertainty. Rather than putting the brakes on the Czech economy, which would materially change our fundamental outlook, the oil shock is headwinds for it,” says Jan Vejmělek, Komerční banka’s chief economist.
Despite the geopolitical turbulence, the major economies are doing relatively well. The US is benefiting from the fiscal impulse, strong household consumption, and companies’ high capex, in particular on data centres. The German fiscal package, money from EU funds, households’ savings, investment in AI, and a recovering property market are helping the euro area.
“As oil supply recovers oil prices should be gradually normalising, our scenario indicates; in the fourth quarter of this year, we expect Brent at, on average, USD 75/barrel, and in 2027 at USD 73/barrel,” adds Jana Steckerová, Komerční banka’s economist.
Compared with the preceding forecast, the growth prospects have deteriorated only slightly. We expect the Czech GDP to grow by 2.1% and 2.6% in 2026 and 2027 respectively. Industrial production and retail sales are set to grow by 1.9% and 2.4% and by 3.7% and 2.6% in 2026 and 2027 respectively. Encouraged by the expected fiscal stimulus at home and abroad, capital expenditure also contributes to the result significantly.
“The forecast has not changed dramatically at all. The weaker beginning of the year and the effect of stocking up because of the Near East conflict have motivated certain revisions, but the basic story remains the same: the Czech economy is growing, relies on internal demand and investment, and also remains relatively resilient to the impacts of geopolitical tensions,” adds Martin Gürtler, Komerční banka’s chief forecaster.
The labour market stays tense and will continue to support household consumption. The forecast indicates that the share of the unemployed will be 4.9% on average this year and will slightly decline to 4.7% in 2027. Nominal wages should rise by 7.1% and 6.1% this year and next year respectively. This will underpin households’ purchasing power but at the same time will have inflationary effects.
Inflation will stay under control but the pressures on core inflation will not disappear quickly. Overall inflation is expected to be 2.1% and 2.6% in 2026 and 2027 respectively. At the end of this year and the beginning of next year it may rise over 3% for a short time, primarily due to the lagging impact of more expensive energy on the other components of inflation but also due to the technical effect of the statistical base. Core inflation will oscillate around 3% for a fairly long time, the rising housing costs being a very significant factor.
“The oil shock penetrates inflation via motor fuels at first, its broader impacts coming only later. The important thing is that the increased core inflation is not the story of energy only. The rising housing costs, the tense labour market, and the still strong internal demand are playing an important role,” Martin Gürtler explains.
The CNB’s monetary policy will remain unchanged for a fairly long time. The increased core inflation, the tense labour market, and the strong internal demand reduce the room for a rapid relaxation of monetary conditions. Our forecast suggests that short-term rates will remain in a slightly restrictive zone; we estimate the average 2W repo rate at 3.6% and 3.8% for 2026 and 2027 respectively. The Czech koruna is expected to remain one of the factors dampening imported inflationary pressures, its average rates being 24.3 CZK/EUR and 23.9 CZK/EUR in 2026 and 2027 respectively.
The budget’s deficit is moving on an upward trajectory despite the economy’s solid growth. We expect that the national budget’s cash deficit will deepen to CZK 310 billion this year, and to CZK 360 billion next year. Together with that, in relation to the GDP the deficit in public finance is therefore expected to rise from last year’s 2.1% to 2.8% and 3.2% this and next year respectively. Thus, the fiscal policy will act expansively this and next year. Because of the relaxation of the national budgetary rules, we do not expect any significant consolidation in the coming years either. The public debt is therefore set to continue to rise, reaching approximately 50% of the GDP by the end of this decade.
“In addition to inflation, the deteriorated prospects for public finance are also likely to be reflected in financial markets, specifically by pressures for higher market interest rates and higher yields of longer-tenor government bonds,” adds Jaromír Gec, Komerční banka’s strategist.
Lending activity in the Czech economy should stay positive in the coming quarters, but its dynamics will be dampened by tighter financial terms and conditions. Mortgage and consumer financing will probably decline in the second half of the year when the higher level of interest rates will be more manifest. Thus, following the strong first half of the year, strengthened even more by stocking up, households’ borrowing will slow down while the growth of property prices will stay accelerated in the coming years despite this year’s further slowdown to slightly below 9%. Corporate borrowing will also be hampered by higher interest rates; nevertheless, the Czech economy’s good shape and an increased investment appetite will counter that.
“The Czech economy remains at the stage of an expansive financial cycle. Higher rates will cause the lending activity to cool down somewhat, but the environment of solid growth and investments related to structural changes in the economy should continue to support it,” forecasts Kevin Tran Nguyen, Komerční banka’s economist.
“The Czech economy is forging ahead through headwinds. This does not mean that the risks have disappeared. But it does mean that the current shock is not yet changing the basic picture of the economy: growth remains solid, internal demand strong and inflation manageable, albeit with persisting core pressures,” Jan Vejmělek concludes.
Macroeconomic forecast
| 2025 | 2026 | 2027 | |
|---|---|---|---|
| GDP (real growth, yoy in %) | 2.7 | 2.1 | 2.6 |
| Household consumption (real growth, yoy in %) | 2.6 | 3.1 | 2.7 |
| Fixed investment (real growth, yoy in %) | 3.3 | 4.7 | 2.2 |
| External trade balance (CZK bn) | 206.8 | 108.6 | 199.1 |
| Industrial production (real growth, yoy) | 2.1 | 1.9 | 2.4 |
| Retail sales (real growth, yoy in %) | 3.3 | 3.7 | 2.6 |
| Wages (nominal growth, yoy in %) | 6.6 | 7.1 | 6.1 |
| Unemployment rate (MPSV, in %) | 4.4 | 4.9 | 4.7 |
| Inflation (yoy in %) | 2.5 | 2.1 | 2.6 |
| 3M PRIBOR (average) | 3.6 | 3.7 | 3.9 |
| 2W Repo (average) | 3.6 | 3.6 | 3.8 |
| CZK/EUR (average) | 24.7 | 24.3 | 23.9 |