Macroeconomic forecast The economy is going up a gear
Last year, the Czech economy grew the fastest over the past three years, and it is now poised to maintain such dynamics this year. The unexpectedly successful second half of last year occasioned an upward revision of Komerční banka’s forecast to 2.6% for 2025 and to 2.7% for 2026. Its October edition expected FY growth at 2.1% for 2025 and a slowdown to as low as 1.6% for 2026. “In view of the continuously uncertain external environment with a number of risks, in particular geopolitical ones, the structure of current and expected growth that relies on external and internal demand, consumption, and investment is good news,” clarifies Jan Vejmělek, Komerční banka’s Chief Economist.
Exporters again coped well with the difficult conditions. Despite the unfavourable external environment, which was significantly affected last year by the US unleashing trade wars and imposing high custom duties on imports into the US, Czech exporters were successful thanks to focusing on producing goods with a higher added value and services while looking for new export destinations. Thus, the external trade surplus in 2025 most probably again exceeded CZK 200 billion and was only slightly lower than in 2024. The end of last year then saw evident recovery in Czech industry. “The first impact of the fiscal stimulus in Germany can be felt at last, and it should be even stronger this year,” Jana Steckerová, Komerční banka’s economist, brings good news.
This year, net exports will actually contribute slightly positively to growth; however, internal demand will play the main role as the key driver. The private sector should join the public sector’s healthy investment activity this year. The growth of investment should go hand in hand with recovering industrial production. In the labour market, the recovery should help to arrest the trend of last year’s rising unemployment rate, which, however, also had a significant frictional segment. The developments in wages rather surprised by their stronger dynamics; apparently, wages nominally rose by 7.2% last year, while Komerční banka’s forecast envisages 5.6% for this year. “The growth of both real wages and household consumption towards the end of last year resulted in both of these indicators most probably reaching their pre-pandemic levels, doing so approximately half a year earlier than we had expected as late as October,” confirms Martin Gürtler, Komerční banka’s chief forecaster.
Inflation will stay below the target this year. Consumer prices rose by 2.5% on average last year while the figure will be only 1.6% this year, in our opinion. A major counter-inflationary factor will be the lower energy prices thanks to the drop in market prices and, primarily, the reduction of their regulated component as the result of the cabinet’s decision to transfer the payment of the charge for renewable energy sources from households (and businesses) to the State. However, core inflation, i.e. inflation net of the prices of foodstuffs, energy, and regulated components, will stay appreciably higher this year, at 2.3% on average. Due to the cabinet’s more relaxed fiscal policy it may even begin rising from around mid-2026. “In this context, we do not expect the CNB to cut the rates again this year. On the other hand, in the light of the recent change in the central bank’s communication, rate cuts cannot be ruled out completely,” Martin Gürtler outlines a scenario for the development of the monetary policy rates.
The Czech koruna will appreciate slightly this year. Despite the relatively favourable global sentiment, financial markets’ bets on further CNB rate cuts may put the Czech currency under pressure in the coming months. “However, in our basic scenario we do not envisage any slackening of the Czech monetary policy, and we therefore consider that the koruna—enjoying the support of a wider interest rate differential and the Czech economy’s healthy growth—should return to appreciation in the CZK/EUR pair from the second quarter of this year,” explains Jaromír Gec, Komerční banka’s strategist. But this will be partly offset by the US dollar’s simultaneously restored appreciation, which is, on the contrary, typically not beneficial for emerging markets’ currencies, including the Czech koruna. “On the whole, following the initial weakening, we expect the Czech currency to slightly strengthen to CZK/EUR 24.10 by the end of this year,” Jaromír Gec unveils his outlook.
Fiscal policy is shifting to expansion. We expect the national budget’s cash deficit to deepen to CZK 310 billion this year. “In relation to the GDP, our estimates indicate that hand in hand with such deepening the public finance deficit will rise from last year’s 2.1% to 2.8% of the GDP,” opines Jaromír Gec. Following the end of the budget stopgap we expect the fiscal policy’s visibly expansive working to build up gradually, with a favourable effect on GDP growth, but also on inflation and interest rates. We do not expect the consolidation of public budgets to be restarted in the following years. At the same time this means that the country’s budgetary policy rules will likely be loosened. In spite of that we expect the Czech Republic to continue to meet the Maastricht criteria, relating to the public finance deficit and debt level, throughout the time covered by our forecast.
The fiscal stimulus and a stronger economy will help to boost lending activity this year. However, financing terms and conditions will probably not be softened too much. Households’ demand for mortgage and consumer loans will remain strong, similar to 2025, and will significantly contribute to the growth in lending. Primarily the business sector will register the rather significant renewal of lending stimulus. “This mix of a relaxed fiscal policy, an only slightly restrictive monetary policy, and a vigorous economic growth will help to whet investment appetite,” forecasts Kevin Tran Nguyen, Komerční banka’s economist. The overheating of the property market will continue, but will weaken on the whole. “Despite a slowdown, the growth of real estate prices will again outpace that of households’ income,” warns Kevin Tran Nguyen. The persistently low level of credit risk in credit portfolios will provide solid foundations for financing the Czech economy.
Macroeconomic forecast
| 2024 | 2025 | 2026 | |
|---|---|---|---|
| GDP (real growth, yoy in %) | 1,1 | 2,6 | 2,7 |
| Household consumption (real growth, yoy in %) | 2,2 | 2,9 | 2,8 |
| Fixed investment (real growth, yoy in %) | -3,0 | 1,0 | 3,3 |
| External trade balance (CZK bn) | 220,5 | 210,0 | 220,2 |
| Industrial production (real growth, yoy) | -1,0 | 1,4 | 2,5 |
| Retail sales (real growth, yoy in %) | 4,5 | 3,6 | 2,6 |
| Wages (nominal growth, yoy in %) | 7,2 | 7,2 | 5,6 |
| Unemployment rate (MPSV, in %) | 3,8 | 4,4 | 4,6 |
| Inflation (yoy in %) | 2,4 | 2,5 | 1,6 |
| 3M PRIBOR (average) | 5,0 | 3,6 | 3,6 |
| 2W Repo (average) | 5,1 | 3,6 | 3,5 |
| CZK/EUR (average) | 25,1 | 24,7 | 24,2 |