MACROECONOMIC FORECAST OF THE CZECH REPUBLIC 2Q 26
May 2026: Economic growth slowing to 2% with risks on many fronts, 2.4% growth next year
Prague, 20 May 2026 - The forecast panel of the Czech Banking Association (CBA), which brings together the chief economists of leading Czech banks, has downgraded the outlook for the Czech economy. The economy is still expected to show solid 2% growth this year. Consumer inflation should accelerate towards the upper end of the inflation target at the end of this year, with average growth of 2.5% this year. And it will remain higher at 2.7% next year, raising the risk of higher central bank interest rates. While 40% of forecast panel members expect this scenario, most see the base rate holding steady at 3.5%. This difference partly reflects the uncertainty of the forecast due to the length of the closure of the Strait of Hormuz. The latter was also the subject of a CBA survey, with 60% of panellists expecting it to open in the second quarter and 40% in the following quarter. The forecast faces the uncertainty of looser fiscal policy next year.
The CBA's forecast now expects slower real GDP growth this year, at 2.0% y/y, after accelerating to 2.6% in 2025. For 2027, panelists look for a return to stronger economic growth at 2.4%. Compared to the February forecast, the panel lowered its estimate of GDP growth by 0.6 percentage point this year and further by 0.2 p.p. for next year. The outlook reflects a $25 higher oil price this year, weaker growth in the eurozone economy and increased uncertainty in the global economy related to developments around the Strait of Hormuz and commodity markets, which pose risks to investment activity. This translates into weaker growth in export activity in our forecast, as well as a likely temporary decline in inventories, which may in turn support the economy once the shock wears off.
The downgraded outlook takes place against the backdrop of an expected 0.8 percentage point increase in the rate of consumer inflation to 2.5% this year, followed by a 2.7% rise in 2027. The forecast looks for the second-round effects of higher energy and commodity prices to gradually trickle through to food prices and other components of the consumer basket at the turn of this year and next. Despite the negative impact of higher inflation on real wages, which will still maintain a solid 3.5% pace this year, higher inflation will not be fully passed on to domestic demand. The outlook for private consumption maintains a decent outlook this year, with growth of 2.7%, thanks to an expected lower rate of still abnormally high household savings, higher credit activity and looser fiscal policy.
Jaromír Šindel, Chief Economist of the Czech Banking Association:"The CBA's May forecast presents a less favourable outlook for 2% growth in the Czech economy this year due to the return of consumer inflation to the upper half of the central bank's target and weaker foreign demand. In addition to the Hormuz uncertainty, both monetary and fiscal policy pose uncertainties for our forecast."
CBA poll: Opening of the Strait of Hormuz. As part of the poll, we asked about the second most likely scenario for the expected opening of the Strait of Hormuz. In this scenario, the forecast panel on average expects the Strait to open in the third quarter of this year, but some expect an even later opening, after the most likely scenario with an opening in the second quarter. In the case of a later opening, we then expect slower economic growth of 1.6% this year and 2% next year and faster inflation growth of 2.6% and 3.3%. However, in the alternative scenario of a CNB interest rate hike to 3.75% this year.
This scenario assumes an average oil price close to USD 98 per barrel this year and USD 85 next year. In contrast, the baseline scenario, which is shared by the majority of the panel, works with an average Brent oil price near $89 per barrel this year, $25 higher than in February, and a decline towards $75 in 2027.
Helena Horská, Chief Economist at Raiffeisenbank:"If the conflict in the Middle East freezes, the world could very quickly move from a price shock to an acute commodity shock. The moment the economy faces not only high prices and rising inflationary expectations, but also empty warehouses of strategic raw materials, production will grind to a halt and inflation will spill over from industry to food prices and current services. But the biggest risk is panic - a factor that has managed to cripple the entire economy many times in history, from investment to trade to consumption."
Key Risks and Uncertainties of the Deteriorated CBA Forecast
- Qualitative forecast uncertainty: opening of the Strait of Hormuz - This uncertainty is associated with the potential for further deterioration of even the less favourable alternative scenario from the survey, which envisages the Strait opening in the third quarter. The uncertainty lies in the now unquantifiable risk of the impact of a later resumption of Gulf commodity supplies with more significant disruption to global supply chains.
- Risk of tighter monetary policy - Already in the baseline scenario, the panel is essentially split between leaving the CNB interest rate at 3.5% and raising it to 3.75% or 4% this year. This alternative view only partially reflects the second most likely scenario of a later opening of the Strait of Hormuz. In addition to this factor, it reflects the higher outlook for core inflation (2.6% in 2027), as well as longer-term global inflation risks, but also a higher ECB interest rate, which in our outlook only partly feeds through to a weaker crown. This risk is reflected in the outlook in the expected slightly higher long-term yields in the economy, which is also related to the following factor.
- Uncertainty of looser fiscal policy - In view of the pending amendment to the Fiscal Responsibility Act and the unknown fiscal deficit path in 2027, the panel also mentions the possibility of looser fiscal policy. This would likely be associated with a fiscal deficit greater than 3% of GDP, which is not the case in the baseline scenario. However, the panel assumes that this overshoot would be associated with a relatively smaller additional inflationary impulse.
Petr Gapko, Chief Economist at MONETA Money Bank:"The world economy has been plagued by geopolitical tensions for several years now, which inevitably impact economic performance. In our country, the impact is mainly manifested in lower economic growth and increased inflation. On the other hand, no one expects that the factors threatening our economy will become so significant that they will erase economic growth altogether. We cannot predict what the current conflicts on the world stage will look like in six months' time, but we see an effort to settle at least the economically painful ones."
CBA Macroeconomic Forecast in figures:
|
Indicator |
2024 |
2025 |
2026 |
2027 |
|
vs. previous outlook |
||
|
|
|
|
|
|
2025 |
2026 |
2027 |
|
|
Real GDP growth (%, yoy) |
1,1 |
2,6 |
2,0 |
2,4 |
|
(0,1) |
(-0,6) |
(-0,2) |
|
Household
consumption (%) |
2,2 |
3,0 |
2,7 |
2,8 |
|
(0,1) |
(-0,1) |
(0,2) |
|
Government
consumption (%) |
3,1 |
2,1 |
2,0 |
2,5 |
|
(0,1) |
(-0,2) |
(0,4) |
|
Investment
(excluding inventories, %) |
-3,0 |
2,6 |
3,5 |
2,6 |
|
(1,6) |
(0,4) |
(-0,5) |
|
Export
(%) |
1,1 |
4,1 |
3,2 |
4,1 |
|
(0) |
(-0,6) |
(-0,1) |
|
Import
(%) |
0,2 |
5,2 |
3,8 |
4,3 |
|
(0,2) |
(0) |
(0,1) |
|
Inflation: CPI (%) average |
2,4 |
2,5 |
2,5 |
2,7 |
|
(0) |
(0,6) |
(0,4) |
|
Inflation: CPI (%) end of year |
2,9 |
2,1 |
3,0 |
2,4 |
|
(0) |
(0,9) |
(0,1) |
|
Core Inflation CPI (%) average |
2,5 |
2,7 |
2,8 |
2,6 |
|
(0) |
(0,3) |
(0,3) |
|
Share of jobless persons (MLSA):
average (%) |
3,8 |
4,4 |
4,8 |
4,7 |
|
(0) |
(0,2) |
(0,2) |
|
Average wage in nominal terms (growth
in %) |
7,2 |
7,2 |
6,1 |
5,3 |
|
(0,2) |
(0,3) |
(0,1) |
|
Average real wage (%) |
4,7 |
4,6 |
3,5 |
2,5 |
|
(0,2) |
(-0,4) |
(-0,4) |
|
Government deficit / surplus (% of
GDP) |
-2,0 |
-2,1 |
-2,8 |
-2,9 |
|
(0) |
(0) |
(-0,2) |
|
Government debt (% of GDP) |
43,3 |
44,3 |
45,6 |
46,5 |
|
(0,5) |
(0,7) |
(1,1) |
|
CNB main rate 2week repo (%): end of
period |
7,00 |
3,50 |
3,50 |
3,50 |
|
(0) |
(0) |
(0) |
|
3M-PRIBOR (%): average |
5,0 |
3,6 |
3,6 |
3,6 |
|
(0) |
(0,03) |
(0) |
|
10Y Czech goverment bond yield:
average (%) |
4,0 |
4,3 |
4,8 |
4,6 |
|
(0,02) |
(0,39) |
(0,3) |
|
ECB refinancing rate (%): end of
period |
4,50 |
2,15 |
2,53 |
2,40 |
|
(0) |
(0,38) |
(0,25) |
|
EUR/CZK: average |
25,1 |
24,7 |
24,4 |
24,2 |
|
(0) |
(0,2) |
(0,1) |
|
EUR/CZK: end of year |
25,2 |
24,2 |
24,4 |
24,2 |
|
(0) |
(0,2) |
(0,2) |
|
Real GDP growth in the euro area (%) |
0,9 |
1,4 |
0,9 |
1,3 |
|
(0) |
(-0,4) |
(-0,2) |
|
Oil price (USD/barrel): BRENT average
|
80 |
68 |
89 |
75 |
|
(-0,6) |
(24,7) |
(10,3) |
|
Growth of bank loans to clients (%) |
6,1 |
5,9 |
7,2 |
6,0 |
|
(0,1) |
(0,8) |
(0,1) |
|
Growth of bank loans to households
(%) |
4,9 |
7,2 |
8,2 |
7,5 |
|
(0) |
(1) |
(0,9) |
|
Growth of bank credits to
(non-financial) corporations (%) |
7,6 |
4,1 |
5,9 |
5,6 |
|
(-0,1) |
(0,7) |
(0,3) |
|
Growth of bank clients' deposits,
total (%) |
7,4 |
4,4 |
5,7 |
5,1 |
|
(0) |
(0,8) |
(0,1) |
Source: CBA forecast, CSO, CNB, Labour Office, Macrobond
Slower but solid growth of the Czech economy thanks to resilient domestic demand
Economic growth will continue to be driven mainly by domestic demand. Private consumption is expected to grow by 2.7% this year and 2.8% next year, despite higher inflation and heightened uncertainty. However, higher inflation this year is reflected in a weaker outlook for real wages, which have been cut by around half a percentage point to 3.5% compared to the previous forecast. Household consumption should therefore be more supported by a slightly lower savings rate compared to its still high level (19.7% at the end of last year). This will be particularly true for higher-income households, which will partly offset the impact of the more moderate growth in real wages on consumption. At the same time, the forecast continues to assume stronger growth in disposable income than in wages as at the end of 2025.
Investment activity has been revised upwards from the previous forecast, largely reflecting a positive revision to investment activity in 2025. Investment excluding inventories is expected to grow by 3.5% this year and by 2.6% in 2027, reflecting a gradual recovery in corporate lending activity. The Czech economy's exports are expected to grow by 3.2% this year and 4.1% next year, with weaker euro area growth remaining the main constraint on export performance, which is expected to grow more slowly this year than in the previous forecast. Partial support remains provided by the German fiscal package and the continued resilience of the Czech export sector, which is finding a foothold in non-EU markets. But here too, the risk of a cooling of Asian economies, hitherto promising markets, is evident because of the Iran war.
Quarter-on-quarter growth in the Czech economy is expected to accelerate to 0.4% in the second quarter of this year after slowing to 0.2% at the beginning of this year, with a risk of a positive revision. Economic growth should accelerate slightly to 0.5% in the second half of the year and to 0.6% in 2027. The panel is slightly divided on the strength of the recovery this year, which is related to the uncertainty about the opening of the Strait of Hormuz and the related impact on the global economy.
Consumer inflation returning to the upper half of the central bank's target
The inflation outlook is a significant change from the previous forecast. Consumer inflation should average 2.5% this year, compared with 1.7% in the February forecast. At the end of this year, inflation should be around 3%. In 2027, the forecast expects a further slight acceleration in average inflation to 2.7%. The higher inflation outlook reflects not only fuel and energy prices, but also second-round effects through the production chains, especially on food prices and other commodity components of the consumer basket. These pressures should become more evident, especially from the fourth quarter of this year, consistent with the signals of higher input prices from purchasing managers' indices.
Core inflation remains elevated and should reach 2.8% this year and slow only slightly to 2.6% in 2027. Higher core inflation also reflects persistent domestic cost pressures. Indeed, the forecast continues to assume relatively strong nominal wage growth of over 6% yoy this year amid slower economic growth, implying higher unit labour cost growth. This is one of the main reasons why the panel sees the domestic inflation environment as persistently elevated even in the face of weaker economic growth, which is also reflected in the risk mentioned above. Inflation also reflects only a gradual slowdown in house price growth to below 10% this year.
The overall inflation path thus reflects a combination of the oil price shock and the gradual impact of higher commodity prices, but the effects of strong wage developments, slow growth in value added, i.e. from a labour market albeit less tight than in the past, and looser fiscal policy are still evident. These factors in the new outlook overcame the disinflationary regulatory intervention by the government earlier in the year in the area of the renewable energy levy, which significantly reduced electricity prices. The current consensus forecast does not include the possible abolition of the franchise fee. This move could reduce consumer price inflation by around 0.3 percentage point next year in the full scenario, towards the middle of the upper tolerance band of the inflation target. However, this effect would probably be partly offset by a fiscal stimulus of around CZK 10 billion (slightly over 0.1% of GDP), which would again have a partly inflationary effect on core inflation. On the other hand, beyond the forecast horizon, a risk of a delayed possible introduction of ETS2 can be perceived.
The labour market should remain relatively stable. The average registered unemployment rate should reach 4.8% this year and fall slightly to 4.7% in 2027. Thus, despite weaker economic growth, the forecast does not foresee a significant deterioration of the labour market, but rather a gradual easing.
Higher inflation translates into risk of CNB interest rate rise
In the area of monetary policy, the forecast panel continues to expect the CNB base rate to remain stable at a median of 3.50% at the end of this year and next year. However, the distribution of the panel's views is shifted towards higher rates. Almost half of the panellists allow for a rate hike in the 3.75%-4.00% range for this year, reflecting higher and more persistent domestic inflationary pressures, as well as the impact of the Iran war. Monetary policy risks thus remain skewed towards tighter settings, mainly due to persistent supply shocks, higher inflation and the expected ECB rate hike coupled with the risk of a weaker crown.
Bank loans and deposits
The outlook for bank lending activity remains relatively strong despite the weaker macroeconomic environment. The forecast panel expects bank lending to customers to grow by 7.2% this year and 6.0% in 2027. Household lending remains the main driver, with growth expected to reach 8.2% this year and slow to 7.5% next year. This reflects the continued recovery of the mortgage market, which showed strong momentum at the start of this year due to frontloading ahead of the CNB's stricter criteria for so-called investment mortgages, as well as frontloading on lower interest rates in the face of strong growth in market interest rates. However, stronger growth in consumer credit is also reflected in the expected stronger household credit growth.
Lending to non-financial corporations is expected to accelerate to 5.9% this year after a weaker performance last year. The forecast thus anticipates a gradual return of investment activity by corporations and stronger demand for financing. However, bank lending growth should slow slightly to 5.6% in 2027 due to weaker investment activity.
Despite slower growth, the economy continues to dampen international regional divergences
Czech economic outlook in charts
