MACROECONOMIC FORECAST OF THE CZECH REPUBLIC 3Q 25
August 2025: the CBA improved its outlook for the Czech economy. 2.1% growth confirms resilience and slightly higher inflation leads to a more cautious CNB
Prague, 20 August 2025 - The forecast panel of the Czech Banking Association (CBA), which brings together the chief economists of leading Czech banks, expects stronger growth of the domestic economy this year by 2.1% and 2% next year. The forecast is thus more optimistic than the May prediction, which counted only 1.7% for this year. The improvement comes despite the higher 15% US tariffs, which are expected to remain in force in 2026. The impact of trade wars continues to figure strongly in the forecast, which, according to the CBA survey, will take 0.6% points off Czech GDP in 2025 and 2026, but less than the May consensus of -0.8% points.
The CBA's better forecast is based on: 1) a stronger outlook for export activity, supported by foreign demand, which helps offset the negative effects from the tariff wars in the second half of this year, when the effect of stronger exports to the US due to frontloading in previous quarters is also likely to ease; 2) a better initial state of the economy (including an expected slightly positive revision to Q2 GDP), accompanied by a slightly stronger level of real wages. This is despite a slightly higher forecast for this year's 2.5% consumer inflation, which, however, is pointing closer to the centre of the central bank's inflation target in 2026 with an estimated annual growth of 2.2%.
The CBA's forecast therefore continues to look for a cautious reduction in the CNB interest rate to 3.25% in Q1 2026, also thanks to a stronger koruna and a lower ECB interest rate and Fed monetary policy. However, the outlook for the CNB rate is a quarter percentage point higher than in the May forecast. This, together with a stable outlook for a lower ECB rate and more robust export activity, leads to expectations of a slightly stronger koruna against the euro (24.6 at the end of 2026). Considering the dispersion of forecasts for Czech economic growth and consumer prices among the panellists and their view of the CNB's monetary policy, the outlook for the CNB rate is associated with a risk of a slightly larger cut to 3% in 2026 than with its stability at 3.5%.
On the other hand, however, the CBA forecast assumes that public deficits will stabilise at slightly above 2% of GDP, which will require additional savings. Thus, a possible more significant easing of fiscal policy after this year's elections, with associated higher inflationary pressures due to stronger economic growth, poses an opposite risk to the CNB interest rate outlook. The solid and resilient growth trajectory of the Czech economy has led to a partial improvement in its post-covariance recovery in Central Europe this year. Moreover, the Czech economy is now doing so with lower inflation, lower interest rates and a smaller fiscal deficit. The forecast anticipates a more moderate slowdown in credit growth, with the structure reflecting the composition of growth in the Czech economy.
CBA poll: 15% higher US tariffs will reduce Czech GDP by 0.6% points between 2025 and 2026. As the Trump administration's trade wars have further evolved, we again focused on this topic in our poll of forecast panelists.
First, the consensus forecasts US tariffs on European imports in 2026 at an average level of around 15% (and higher for selected segments: steel, aluminium, possibly pharmaceuticals). Just under a quarter of respondents expect positive developments in the negotiations reducing the effective tariff to 10%. In May, the consensus assumption was for a 12% effective tariff.
Second, during 2025 and 2026, tariff wars will slow real growth in the Czech economy by 0.6% points overall, with half of the responses ranging from -0.5 to -0.75% points. This estimate is milder than May's -0.8% point despite a higher overall tariff rate due to lower tariffs on automobiles.
Thirdly, only a quarter of respondents (up from half in May) expect additional disinflationary pressure on Czech prices from the US-China trade wars, which likely reflects the de-escalation of tariff wars on this front as well.
US tariffs add uncertainty to the strength of the Czech economic recovery in the second half of this year
Source: Forecast CBA
The outlook remains shrouded in uncertainty
The first uncertainty is the impact of the tariff wars on the Czech economy. This is particularly reflected in the more moderate expected recovery of the economy, especially in the second half of this year (0.35% quarter-on-quarter on average), which is associated with the highest level of uncertainty. On the other hand, at the forecast horizon, we expect the outlook for the Czech economy to stabilise at 0.7% q-o-q growth in the second half of 2026. Uncertainty about the strength of the economic recovery in the second half of this year may shuffle the cards regarding the return of consumer inflation to the target in 2026, in both directions. This would translate (but probably asymmetrically) into a different CNB interest rate policy stance (additional rate cuts vs. more hawkish communication). Uncertainties in the external environment may continue to include the German fiscal package, its implementation and its impact on the Czech economy.
The second uncertainty reflects the unclear impact of the autumn elections to the Chamber of Deputies, as the current outlook assumes a stabilisation of the government deficit despite higher defence spending and investment in nuclear power. This implies continued pressure for budget savings, which will be necessary also in view of the debt brake. The forecast is thus associated with the risk of a more accommodative fiscal policy with implications for growth, inflation, interest rates and the exchange rate.
Michal Skořepa, Macroeconomic Analyst at Česká spořitelna:
"Our panel expects the public finance deficit to remain slightly above 2% of GDP this year and next year and for the Czech debt ratio to increase only very gradually towards 45% of GDP. In this sense, it expects that the government emerging from the upcoming parliamentary elections will not set Czech fiscal policy on a clearly unsustainable path."
New ETS2 emission allowances with the potential to significantly and structurally affect inflation after 2026 with an asymmetric impact on monetary policy represent another uncertainty. The Czech National Bank assumes that, compared to a scenario where the ETS2 market price would reach a capped, inflation-adjusted price of EUR 57 per tonne of CO2 with full pass-through to year-on-year growth in Czech consumer prices, the impact on these prices will actually be half as large, at 0.6% points (of which 0.15% points is a secondary impact relevant for monetary policy, albeit to a negligible extent of about +0.1% points on the interest rate).
Czech economy
Slightly higher inflation with a slightly more favourable trajectory for average real wages. In the baseline scenario, we expect consumer price growth to accelerate slightly to 2.5% yoy this year due to higher food prices but also a stronger pace of core inflation. This reflects both higher house prices and increasingly strong price dynamics in services (reflecting both structural changes and the convergence of the Czech economy). However, for 2026, we still expect 2.2% consumer inflation growth, albeit with a slightly higher 2.4% core inflation rate. Nominal average wage growth is likely to moderate by one percentage point to 6.2% this year and slightly below 5% next year, which is a slightly better outlook compared to May and may still be slightly inflationary. As a result, we see real wage growth essentially unchanged at 3.6% and 2.6%, however, following stronger 4.7% growth last year, so also a slightly more favourable trajectory than in the May outlook. According to the current forecast, the level of real gross wages will thus only return to the pre-forecast level of 2019 during the course of next year (disposable income of Czech households is already above this level). However, real wages will not reach their highest level to date in 2021 until 2027 at the earliest.
Petr Dufek, Chief Economist at Bank Creditas:
"The growth of the Czech economy this year and next will primarily depend on household consumption. The much-needed investments required to build the potential of the Czech economy in the increasingly competitive international trade will start to show up first next year."
More robust exports, stable outlook for stronger consumption, modest recovery in investment. The deterioration in the registered unemployment rate to a seasonally adjusted summer rate of 4.5% reflects both structural (continued decline in industrial employment) and probably already cyclical developments in the economy. On the other hand, rising employment in the national accounts suggests that structural changes are probably still playing a more prominent role in this process. However, this development also hinders a better outlook for Czech household consumption, which nevertheless remains the driving force behind the increase in Czech GDP, with an increase of around 2.5% this year and next.
However, the August improvement in the CBA forecast mainly reflects stronger export activity this year and a slight improvement in fixed investment next year. The still weak outlook for a recovery in fixed investment, despite relatively solid capacity utilisation, reflects weaker competitiveness, but also greater uncertainty in the medium-term outlook for the Czech economy due to structural changes (e.g. the shift to electromobility, higher energy prices, as well as the uncertain impact of energy/climate policy). As a result, this is associated with uncertainty and a prolongation of the payback period for fixed investments. This development then undermines the potential of the Czech economy due to the lack of new, more competitive production capacities that would significantly relieve tensions on the labour market in the desired way - i.e. through higher productivity with the same or higher wage growth.
Jaromír Šindel, Chief Economist of the Czech Banking Association:
"For the second half of 2026, we expect Czech economic growth to stabilise at 0.7% quarter-on-quarter, which paves the way for stronger annual growth of the Czech economy in 2027, closer to three per cent than to two per cent as in 2026."
A more moderate slowdown in credit growth, with the structure still reflecting the composition of economic growth
Overall, customer credit growth should moderate only marginally to just below 6%. Growth in bank lending to households should strengthen to 6.5% this year and next, after nearly 5% growth last year. This is stronger momentum than we had forecast in the spring, reflecting a rebound in mortgage activity. However, business lending should slow its momentum slightly to 5.5% in 2025 from last year's 7.6% annual growth. But even here, the outlook is improving in response to the more robust economic and export performance of the Czech economy, which has already been reflected in a rebound in new lending to businesses in the second quarter of this year. These figures confirm the change in the structure of credit production, as confirmed by the available figures on new loans for the first half of this year. However, the structure of credit development reflects the composition of economic growth. That is to say, relatively stronger growth in consumption compared to investment, as well as a stronger property market and construction sector.
We expect deposit growth to slow this year and next, to slightly below 5% in 2026 after nearly 7.5% growth last year. This is in response to softer corporate credit growth, falling interest rates, a relative recovery in household portfolio investment rather than savings, as well as a projected lower household savings rate.
The outlook for the Czech economy in the charts:
CBA Macroeconomic Forecast in figures:
Global uncertainty persists
We again expect only gradual but still fragile growth in the euro area economy of 1.2% and 1.1% year-on-year this year and next, a 0.4% point stronger performance than in the spring forecast. This is positively reflected in the improved outlook for Czech exports, also thanks to the inclusion of the German fiscal package in the outlook (but with effects only from 2026), but also thanks to lower US tariffs on the European automotive industry, which has a positive impact on the main Czech trading partners - Germany and Slovakia.
Despite the outlook for stronger economic growth in the eurozone, we still expect a further cut in the ECB's deposit rate to 1.75% this year from the current 2%. This should also be accompanied by an easing of monetary policy by the US Fed. Although we expect oil prices to be slightly higher in 2025 than in the previous outlook, the impact on Czech inflation will be more than cushioned by a stronger koruna against the US dollar.
The solid and resilient growth trajectory of the Czech economy is partly cushioned by international regional divergences, with lower inflation, lower interest rates and smaller fiscal deficits and debt.
As part of the post-Covidian recovery, the Czech economy continues to grow at a stronger pace compared to Germany, and given the consensus outlook for the German economy, the cumulative growth differential from 2020 onwards was set to widen to 5% next year. At the same time, the Czech economy is expected to almost close its underperformance relative to the euro area in 2026 (cumulative gap narrows to -0.5%) and also to moderate its underperformance relative to the Slovak economy (cumulative to -4%). A similar improvement is likely to be seen this year relative to the Hungarian economy, but the parliamentary elections there in spring 2026 are thought to partially reverse this improvement to -3.3% from the perspective of the Czech economy. However, the Polish economy is likely to continue to lose significantly relative to the post-Cold War recovery, cumulatively losing almost 12% in 2026.
The remaining Visegrad economies will outperform the Czech economy by 0.2% points on average this year and next, and by 0.6% points in the case of household consumption. This reflects the impulse from larger government budget deficits, which in these years will exceed the 3% bar in Visegrad neighbours by more than 2% of GDP on average, while the Czech deficit should be 0.7% points better than the 3% threshold. At the same time, we expect Czech government debt to be less than 45% of GDP this year, while in the rest of Visegrad the European Commission expects government debt there to be on average 4% points above the 60% debt level (Hungary 74%, Slovakia 60%, Poland 58%). All this is likely to come at the cost of higher consumer inflation, 1.2% points above the central banks' target in the rest of Visegrad, while in the Czech Republic it is 0.5% points. It is no coincidence that central bank interest rates are higher in the region (Poland 5.25%, Hungary 6.5%) than in the Czech economy (3.5%).
Source: Eurostat, Consensus Economics, CNB, Forecast CBA
Source: Eurostat, Consensus Economics, CNB, Forecast CBA