MACROECONOMIC FORECAST OF THE CZECH REPUBLIC 2Q 25
May 2025: the CBA has downgraded the outlook for the Czech economy. It will grow by 1.7% this year, 2% next year. Economists predict 12% US tariffs
Prague, 22 May 2025 - The chief economists of the banks represented in the forecasting panel of the Czech Banking Association (CBA) expect slower growth of the domestic economy by 1.7% this year and a more moderate acceleration to 2.0% in 2026. As recently as February, the CBA expected the economy to grow by 2.1% this year and 2.4% next year). The negative impact of trade wars and the uncertainty associated with them have significantly contributed to the weaker outlook. According to the CBA poll, trade wars will take 0.8% points off Czech GDP growth in those years, with analysts forecasting a steadying of US tariffs on European imports of 12% on average for 2026. However, the Czech economy's starting position is somewhat stronger than we expected in February or than the first quarter GDP numbers suggest. Therefore, as in February, we do not expect significant impacts on labour market or inflation-related numbers, which limits the economic policy response. Real wages will reach their pre-forecast level next year.
In the baseline scenario, we assume a slight slowdown in annual consumer price growth to 2.3% this year and only a further slight deceleration to 2.2% in 2026. Nominal wage growth will moderate by more than one percentage point to 5.9% this year and further below 5% next year, which may still be a slightly inflationary number. Real wages are forecast to grow by 3.5% and 2.7% in our forecast, following 4.5% growth last year, a slightly more favourable trajectory than in the February outlook. The deterioration in the labour market reflects a weaker economic recovery, but we still expect the unemployment rate to stabilise rather than rise significantly. CNB interest rates are likely to continue to fall gradually, but we still see room for one further cut in the two-week repo rate to 3.25% this year and 3% next year. This outlook has not changed since November, as the weaker economic recovery is still accompanied by stronger inflation in some segments of the economy. We also see less scope for the koruna to appreciate to 24.7 per euro at the end of next year from 25 at the end of this year.
Global uncertainty persists
The outlook for a fragile recovery in the euro area economy of around 1% remains at the forecast horizon. We again expect only gradual euro area growth of 0.9% and 1.2% yoy this year and next, respectively, a 0.1% point weaker performance than in the previous forecast. This still reflects the weaker outlook for the industrial and export-oriented part of the economy, which is coming under pressure from increased tariffs on exports to the US this year. These are hitting Germany harder, whose economy is expected to experience stagnation rather than recovery this year, according to the consensus. The proposed government package to support its economy creates a positive environment for the Czech economy only next year. Economic developments in the euro area are likely to result in a somewhat stronger ECB interest rate cut than assumed in the autumn forecast. The ECB should cut its refinancing rate by a further half percentage point to 1.9% and the deposit rate to 1.75% already this year. The outlook assumes a disinflationary effect from lower oil prices, which could settle around $65 per barrel for next year.
CBA poll: 12% US tariffs will reduce Czech GDP by 0.8% point between 2025 and 2026 with possible disinflationary pressures
As the Trump administration's trade wars have significantly increased the level of uncertainty in the economy, we focused on this topic again in our poll of forecast panelists. First, the consensus forecasts US tariffs on European imports in 2026 at an average level of 12% (higher for selected segments such as autos, steel, aluminium, pharmaceuticals). Second, tariff wars are expected to lead to a slower growth of the Czech economy by 0.8% points during 2025 and 2026 (1% point of nominal Czech GDP is about 80 billion CZK). Third, half of respondents expect additional disinflationary pressure on Czech prices from the US-China trade wars, but the other half of analysts do not foresee this impact.
Source:CZSO, CBA forecast
Jan Vejmělek, Chief Economist of Komerční banka:
"The Czech economy will grow this year. However, the flare-up of trade wars and the related increase in global economic uncertainty will have a negative impact on domestic investment activity and exports. However, we will be able to rely on rising consumer spending by households and the government, also thanks to increased defence spending."
Investment and exports behind the outlook for a slower recovery underpinned by consumption
The forecast again suggests a further moderation in the recovery of Czech GDP growth in 2025 and 2026. While higher real wages and the election cycle, along with higher defence spending, should remain supportive of a stronger recovery in consumption, the tariff shock and associated uncertainty have negatively impacted both the export and investment outlook. Real GDP growth accelerated to 1% y-o-y in 2024. Although we expect a further acceleration to 1.7% in 2025, this is a weaker recovery than the previous forecast (2.1%). A similar downgrade to 2.0% has been made for 2026. On the other hand, we consider the first quarter numbers from the economy this year to be stronger than the flash estimate of 0.5% quarter-on-quarter GDP growth suggests. Thus, an upward revision is likely, or stronger growth in value added in GDP, which, by contrast, grew more slowly than GDP last year.
Jaromír Šindel, Chief Economist, Czech Banking Association:
"Not only are the growth prospects of the Czech economy weakening further, but we are also seeing another change in the expected composition of growth, which will again rely more on consumption, while investment will be weaker. Unfortunately, this mix does not suggest the necessary increase in the Czech economy's potential needed to reduce inflationary pressures."
Household consumption grew more strongly by 2% yoy in 2024 and, thanks to a more positive outlook for real wage growth and lower interest rates, we expect it to accelerate further by 3% and 2.5% yoy this year and next. Government consumption growth should also show a solid 2.5% increase in 2025, following a stronger - flood-related - 3.3% increase in 2024. This reflects both planned higher arms spending and, naturally, the election cycle.
Fixed investment (i.e. investment excluding inventories) disappointed last year with its 1.4% y-o-y decline, which, together with the uncertainty associated with the tariff wars, was negatively reflected in the weaker outlook for only a modest 0.2% y-o-y recovery this year. This reflects the predominantly private investment segment, where the structural challenges of the European economy (energy prices, Chinese competition) are likely to be reflected in the weak investment activity outside the tariff wars. We expect growth in this segment only in 2026. This, together with a continued recovery in the housing market and public investment in infrastructure and defence, and thanks to lower interest rates, should contribute to stronger investment activity in 2026.
Due to a weaker recovery in external demand in the wake of the tariff wars, we expect weaker export growth this year and next, at 1.5% and 3% y-o-y, after a 1.5% increase last year. This is about 2.3% points lower cumulative growth than the previous forecast. The negative impact of higher tariffs on exports in the near term will also be amplified by the previous frontloading, which was reflected in a higher share of US destinations in Czech exports.
Helena Horská, Chief Economist at Raiffeisenbank:
"The inflation shocks are definitely over. Thanks to cheaper energy and fuel, inflation should stay around the CNB's 2% inflation target in the coming months. The victory is far from over, however. Core inflation remains elevated - reflecting the receding price effects of the energy crisis and persistent structural imbalances in the property market, which continue to feed through to utility prices and rents."
Source:CZSO, LSEG, CBA forecast
Slight cooling of the labour market, but this year's unemployment will rise rather slightly
The continued weak recovery of the Czech economy is having a negative impact on the labour market. The share of unemployed continued to rise to over 4.2% in March and April from 4% at the end of last year (seasonally adjusted), which was higher than expected in the autumn months. We reflect the current negative dynamics in our expectation of a higher 4.2% share of unemployed persons this year, but followed by a slight decline to 4.1% in 2026. This only slightly more negative outlook is in line with our previous hypothesis that a recovery in the Czech economy of around 2% y/y should not lead to a significant deterioration in the unemployment rate. Thus, the labour market will not loosen up too much thanks to a gradual, albeit more moderate, recovery of the Czech economy, while we observe and expect a continued divergence in labour market demand (industry vs. services; declining local labour supply).
Jan Vejmělek, Komerční banka's chief economist:
"Unemployment will rise slightly above its natural rate this year, both because of weaker growth and structural changes as the shift of workers from industry to services continues."
Real average wages will reach their pre-Covidian level during 2026
Nominal average wage growth will slow to below 6% this year from 7.1% last year and settle below 5% in 2026. Nominal wage growth surprised positively again at the end of last year, given the still strong momentum in quarterly wage growth, especially in services (see structural labour market issues). This, together with the catch-up in real wage levels pre-recession, which is particularly true for the public sector (where we see upside risk for 2026), should keep wage growth still strong. This is slightly above the average 3% annual growth rate for this year and next, thanks to a more moderate outlook for consumer price growth. Thus, according to the current outlook, real gross wages will not return to their pre-2019 level until next year, and will not surpass their 2021 peak so far until 2027.
Source:CZSO, LSEG, CBA forecast
Average consumer price inflation to remain slightly above the centre of the inflation target
After two years of double-digit inflation, when prices rose cumulatively by over 27%, inflation slowed noticeably to 2.4% yoy last year. However, consumer price inflation will continue to rise towards the mid-point of the CNB's inflation target from above in 2025. For this year, we expect inflation to moderate only slightly to 2.3% yoy on average, and to moderate slightly further to 2.2% in 2026. In both years, we expect a modest impact of higher indirect taxes (+0.1% points). Energy prices, i.e. the unregulated part of them, and fuel prices are likely to remain disinflationary, which is not the case for food prices, where we perceive a continued risk of higher volatility caused by weather fluctuations.
We continue to expect core inflation (unregulated prices excluding food, energy and fuel prices) to rise slightly higher than headline inflation, at around 2.6% this year and 2.3% next year. This reflects continued buoyancy in services wages, as well as in rental prices, including imputed rents, where both components reflect the strengthening mortgage and property markets. Structural changes linked to geopolitical developments and climate change continue to pose a risk of stronger consumer price growth, which may, on the other hand, offset the disinflationary impact of possible trade wars between the US and China, probably in the short term.
Helena Horská, Chief Economist at Raiffeisenbank:
"Due to core inflation, the CNB will be cautious with further rate cuts. In the event of unfavourable economic developments accompanied by faster disinflation, rates may fall faster towards 3%. Its European counterpart, the European Central Bank, will cut rates a little more boldly. The exchange rate of the Czech koruna is searching in vain for a direction amid considerable uncertainty - its development is determined more by market sentiment and hot news from the world than by fundamentals."
The CNB will cut its interest rates by only a quarter of a percentage point this year
Despite slower growth, but given the persistently strong wage and core inflation dynamics, we see limited scope for a further decline in the CNB interest rate from the current level of 3.50%.And this is likely to be by a quarter percentage point at the August meeting to 3.25% and further to 3% in early 2026. The risks to the outlook for the CBR interest rate are balanced, although for 2025 we perceive among respondents both the possibility of the interest rate remaining at its current level and a faster decline to 3% as early as this year. However, tariff wars and a slower economic recovery lead the consensus to a less skewed outlook for 2026. Here, all panelists expect the CNB interest rate to fall to 3% and even in one case one step below that level, whereas in the previous forecast the risks associated with the outlook for a 3% CNB rate for 2026 were skewed towards 3.50%.
The exchange rate of the koruna is expected to stabilize around CZK 25 per euro by the end of this year and add a slight appreciation to 24.7 by the end of next year. The forecast for the koruna is supported by a slightly more positive outlook for the interest rate differential between the CNB and the ECB, which widens by a quarter percentage point in our forecast to 1.35% points by the end of this year and 1.1% points by the end of next year. However, this is negatively impacted in our forecast by a deteriorated outlook for net exports and higher uncertainty, which, together with higher planned defence spending, is weighing on the risk premium. This is partly offset, however, by the prospect of a weaker US dollar (with EURUSD at 1.14 in 2026). The dispersion of the outlook for EURCZK at end-2026 remains as usual considerable between 24.4 and 25.4, reflecting the different outlook for the interest rate differential. It is also the case that the spread is slightly narrower and less skewed towards appreciation against the euro in 2026 (the previous forecast had a low of 24), reflecting the aforementioned more pronounced outlook for further interest rate declines in 2026.
Source:CNB, CBA forecast
Jaromír Šindel, Chief Economist of the Czech Banking Association:
"Comparing the current outlook for the Czech economy with the forecast from November last year, the level of nominal GDP is reduced by approximately CZK 100 billion in 2026."
Consolidation package brings the budget deficit to GDP further below the desired 3% threshold
The government deficit improved markedly last year to -2.2% of GDP, a much better result than the -2.8% in the previous forecast. This year and next, we expect it to deteriorate rather slightly to -2.3% of GDP, which is on average the same outlook as in the previous forecast. The slight deterioration in the deficit reflects the inherent reality of the political cycle, which will culminate in the upcoming autumn elections to the Chamber of Deputies, as well as the outlined higher defence spending. The slower recovery in GDP growth leads to a slightly higher increase in government debt to 44.8% of GDP in 2026, 0.5% point higher than our previous forecast. Debt levels remain significantly lower than in neighbouring countries, with the European Commission projecting government debt levels of 45.4% of GDP for the Czech Republic, 65% of GDP for Slovakia, around 65% of GDP for Poland and Germany, around 74% of GDP for Hungary and 91% of GDP for the euro area in 2026.
Jaromír Šindel, Chief Economist, Czech Banking Association:
"The structure of credit reflects the changing composition of economic growth. This has already resulted in a further strengthening of newly granted mortgage loans in the first quarter of this year and a stabilisation of consumer loans slightly above the long-term average. However, the growth impulse from corporate lending has weakened slightly, reflecting the stagnation of the economy's potential and increased uncertainty."
Softer dynamics but changing credit structure reflects the composition of economic growth
Growth in bank lending to households is expected to strengthen slightly to over 6% this year and next, after nearly 5% growth last year, while lending to businesses is expected to slow slightly to just over 5% from 7.6% annual growth last year. Thus, overall, customer credit should moderate its growth to 5.5% from just over 6% in 2024. These figures suggest a change in the composition of credit creation, which is confirmed by the available figures on new credit for the first quarter of this year, which has entered the economy, while this structure reflects the composition of economic growth, i.e. rising consumption, weaker investment, a stronger real estate market and construction.
If we look at mortgage lending, the level of new and increased volumes climbed to almost 4% of GDP in the first quarter, which is around the long-term average. The volume of consumer credit stabilised around last year's average of 1.7% of GDP at the beginning of this year, slightly above the long-term average. And new loans to non-financial corporations have eased their credit impulse to 7.4% of GDP from 7.6% in 2024. The currency structure of new corporate loans is similar to the previous two years with share of EUR loans around half. We expect deposit growth to slow to below 6% this year and further below 5% in 2026 after nearly 7.5% growth last year, reflecting both softer corporate credit growth, falling interest rates and also an expected lower household savings rate.
Source: CNB, CBA (seasonally adjusted)
Makroekonomická
prognóza ČBA v číslech:
|
Ukazatel |
2024 |
2025 |
2026 |
|
vs. předchozí výhled |
||
|
|
|
|
|
2024 |
2025 |
2026 |
|
|
Růst reálného HDP (%) |
1,0 |
1,7 |
2,0 |
|
(0) |
(-0,4) |
(-0,4) |
|
Růst
spotřeby domácností (%) |
2,0 |
3,0 |
2,5 |
|
(0,3) |
(0,4) |
(-0,2) |
|
Růst
vládní spotřeby (%) |
3,3 |
2,5 |
1,6 |
|
(-0,2) |
(1) |
(0,4) |
|
Růst
investic (bez zásob, %) |
-1,4 |
0,2 |
2,6 |
|
(-1,1) |
(-1,7) |
(-0,4) |
|
Růst
vývozů (%) |
1,5 |
1,5 |
3,0 |
|
(-0,1) |
(-1,5) |
(-0,7) |
|
Růst
dovozů (%) |
0,7 |
2,0 |
3,3 |
|
(-0,1) |
(-1,4) |
(-0,4) |
|
Míra inflace: CPI (%) průměr |
2,4 |
2,3 |
2,2 |
|
(0) |
(-0,1) |
(0) |
|
Míra inflace: CPI (%) konec roku |
2,9 |
2,1 |
2,2 |
|
(-0,1) |
(-0,4) |
(0) |
|
Podíl nezaměstnaných osob (MPSV):
průměr (%) |
3,8 |
4,2 |
4,1 |
|
(0) |
(0,1) |
(0,1) |
|
Průměrná nominální mzda (růst v %) |
7,1 |
5,9 |
4,9 |
|
(0,2) |
(0,1) |
(-0,1) |
|
Průměrná reálná mzda (%) |
4,5 |
3,5 |
2,7 |
|
(0,2) |
(0,2) |
(0) |
|
Vládní deficit/přebytek (% HDP) |
-2,2 |
-2,3 |
-2,3 |
|
(0,6) |
(0,1) |
(-0,1) |
|
Vládní dluh (% HDP) |
43,6 |
44,3 |
44,8 |
|
(0,2) |
(0,1) |
(0,5) |
|
Základní sazba ČNB 2T REPO (%): konec
období |
4,00 |
3,25 |
3,00 |
|
(0) |
(0) |
(0) |
|
3M-PRIBOR (%): průměr |
5,0 |
3,5 |
3,1 |
|
(0) |
(0) |
(-0,1) |
|
Výnos 10letého vládního dluhopisu
(%): průměr |
4,0 |
4,0 |
3,8 |
|
(0) |
(0,1) |
(-0,1) |
|
Základní sazba ECB (%): konec období |
3,15 |
1,90 |
1,90 |
|
(0) |
(-0,25) |
(-0,25) |
|
Kurz CZK/EUR: průměr |
25,1 |
25,0 |
24,9 |
|
(0) |
(-0,1) |
(0,1) |
|
Kurz CZK/EUR: konec roku |
25,2 |
25,0 |
24,7 |
|
(0,1) |
(0,1) |
(0,1) |
|
Růst reálného HDP v eurozóně (%) |
0,8 |
0,9 |
1,2 |
|
(0,1) |
(-0,1) |
(0) |
|
Ceny ropy (USD za barel): brent
průměr |
80 |
66 |
65 |
|
(-0,1) |
(-8,1) |
(-7) |
|
Růst bankovních úvěrů klientských (%) |
6,1 |
5,5 |
5,7 |
|
(0) |
(0) |
(0) |
|
Růst bankovních úvěrů domácnostem (%) |
4,9 |
6,3 |
6,0 |
|
(0) |
(0,7) |
(0,5) |
|
Růst bankovních úvěrů (nefinančním)
podnikům (%) |
7,6 |
5,3 |
4,9 |
|
(0) |
(0,1) |
(-0,8) |
|
Růst bankovních vkladů klientských
celkem (%) |
7,4 |
5,5 |
4,8 |
|
(0) |
(-0,3) |
(0) |