MACROECONOMIC FORECAST OF THE CZECH REPUBLIC 4Q 25
November 2025: economy on track for stronger 2.5% growth despite tariff shocks
Prague, 26 November 2025 - The forecasting panel of the Czech Banking Association (CBA), which brings together the chief economists of the leading Czech banks, expects stronger growth of 2.5% this year, with a slight slowdown of a more technical nature to 2.2% in 2026. For the newly included year 2027, we expect a return to a more brisk 2.6% growth. The improvement in the outlook for this year and next year (by 0.4 and 0.2 percentage point, respectively) reflects the resilience of the Czech economy, supported by higher wage growth, government investment, the de-escalation of tariff disputes and, to some extent, the expected looser fiscal policy. The recovery in investment activity will also be positive next year, also thanks to the return of stronger corporate lending activity in recent months.
The outlook for consumer price inflation of around 2.2% in 2026 remains unchanged. However, stronger wage growth together with slightly higher core inflation dynamics are reflected in the outlook for a stable CNB interest rate at 3.50%. And it is expected to remain at half its 2022-2023 peak level during 2027. The post-election outcome translates into expectations of a higher public deficit next year and beyond, while the programme statement of the likely new coalition is not yet fully reflected in the forecast. This is partly due to the as yet unclear timing of individual government plans, but also to uncertainty about how the 2026 budget will be approved.
Overall, the looming change in budgetary policy represents an upside risk to inflation, but rather in the medium term, and its strength will depend on the timing of the implementation of the individual plans. Indeed, in the short term, some measures - such as energy price controls - may instead dampen inflation. Most economists, however, see a risk of a stronger fiscal stimulus in 2027. The solid and resilient growth trajectory of the Czech economy still partially dampens regional differences.
CBA survey:
Key ingredients of the programme statement of the likely new government coalition. The results of the parliamentary elections bring a turning point in economic policy with the plans of the new government. We therefore surveyed forecast panellists to find out which measures they would share in their potential statement, and which will require further structural reforms to reduce the risks associated with them.
The result? The most shared plans include: completing the Single Collection Point, reintroducing the EET and accelerating depreciation to support research. On the other hand, the more risky plans that will require action to mitigate the risks include the abolition of parametric pension reform, including pension indexation, tax cuts (especially corporate tax to 19%) and mortgage subsidy support. However, the impact on the state budget is limited by the age restriction on support (young families with children under 6 years of age) and the relevance to the housing market will depend on timing with planned changes to building management and affordable housing.
CBA Macroeconomic Forecast in figures:
Indicator | 2024 | 2025 | 2026 | 2027 | vs. previous outlook | |||
2025 | 2026 | |||||||
Real GDP growth (%) | 1,1 | 2,5 | 2,2 | 2,6 | (0,4) | (0,2) | ||
Household consumption growth (%) | 2,2 | 2,9 | 2,7 | 2,6 | (0,2) | (0,3) | ||
Government consumption growth (%) | 3,2 | 2,2 | 2,0 | 2,0 | (0,3) | (0,2) | ||
Investment growth (excluding inventories, %) | -3,1 | 0,3 | 2,8 | 3,0 | (0,1) | (0) | ||
Export growth (%) | 1,1 | 3,6 | 3,1 | 4,1 | (1,3) | (0,4) | ||
Growth in imports (%) | 0,2 | 4,8 | 3,8 | 4,1 | (2,1) | (0,7) | ||
Inflation rate: CPI (%) average | 2,4 | 2,5 | 2,2 | 2,3 | (0) | (0) | ||
Inflation rate: CPI (%) end of year | 2,9 | 2,7 | 2,2 | 2,3 | (0,1) | (0) | ||
Core CPI inflation (%) average | 2,5 | 2,7 | 2,5 | 2,3 | (0) | (0,1) | ||
Percentage of unemployed persons (MLSA): average (%) | 3,8 | 4,4 | 4,6 | 4,5 | (0) | (0,3) | ||
Average nominal wage (% growth) | 7,2 | 7,2 | 5,6 | 5,1 | (1) | (0,7) | ||
Average real wage (%) | 4,7 | 4,6 | 3,3 | 2,8 | (1) | (0,7) | ||
Government deficit/surplus (% of GDP) | -2,2 | -2,1 | -2,6 | -2,5 | (0,2) | (-0,3) | ||
Government debt (% of GDP) | 43,3 | 43,7 | 44,6 | 45,0 | (-0,4) | (-0,2) | ||
CNB 2-week REPO base rate (%): end of period | 7,00 | 3,50 | 3,50 | 3,50 | (0) | (0,25) | ||
3M-PRIBOR (%): average | 5,0 | 3,6 | 3,5 | 3,5 | (0,06) | (0,27) | ||
10-year government bond yield (%): average | 4,0 | 4,3 | 4,4 | 4,3 | (0,07) | (0,27) | ||
ECB refinancing rate (%): end of period | 4,50 | 2,15 | 2,15 | 2,15 | (0,25) | (0,25) | ||
CZK/EUR exchange rate: average | 25,1 | 24,7 | 24,4 | 24,1 | (-0,1) | (-0,3) | ||
CZK/EUR exchange rate: end of the year | 25,2 | 24,4 | 24,2 | 24,1 | (-0,3) | (-0,4) | ||
Real GDP growth in the euro area (%) | 0,8 | 1,3 | 1,0 | 1,4 | (0,1) | (-0,1) | ||
Oil prices (USD per barrel): Brent average | 80 | 69 | 64 | 65 | (0,9) | (-0,9) | ||
Growth in bank loans to customers (%) | 6,1 | 5,9 | 6,0 | 6,1 | (0) | (0,1) | ||
Growth in bank lending to households (%) | 4,9 | 6,8 | 7,0 | 6,4 | (0,2) | (0,6) | ||
Growth in bank lending to (non-financial) corporations (%) | 7,6 | 4,4 | 4,8 | 5,4 | (-1) | (-0,8) | ||
Growth in total bank customer deposits (%) | 7,4 | 4,4 | 4,9 | 5,0 | (-0,5) | (0) | ||
Source: Forecast CBA, CSO, CNB, Úřad práce, Macrobond
1) Stronger export activity - despite the stable outlook for external demand, we expect it to strengthen, also thanks to the ongoing diversification of markets (greater orientation outside the euro area, a return to the British market, growth in Asia outside China and in the United States). At the same time, we remain in anticipation of a recovery in the German economy thanks to the fiscal package.
2) Still relatively strong household consumption - supported by higher wage growth and still high savings rates.
3) Government consumption - reflecting both the improved outlook for this year and the expectation of a slightly higher government deficit at least in the next two years.
This year's GDP growth forecast is 0.8 percentage point higher than the May outlook and is around the original CBA forecast from the summer and fall of 2024.
Jaromír Šindel, Chief Economist, Czech Banking Association:
"We expect more robust economic growth next year and beyond, underpinned by all key expenditure components - including investment. This should also be supported by more even growth in lending activity, which is no longer based solely on mortgage loans to households."
The expected strengthening of investment activity from this year's stagnation remains at around 3% in the forecast for next year and beyond. On the one hand, this outlook reflects the likely persistent uncertainty of the European economy, the insufficient assessment of production capacity by manufacturers despite its high utilisation, and a smaller inflow of European funds after the end of the RRF in 2026. The hypothesis of a lower investment intensity of the economy driven by the services sector also plays a role. On the other hand, stronger investment in the energy sector, including a reduction in energy intensity (here the postponement of ETS2 and thus of the climate fund subsidies represents a downside risk), or the postponed investment activity from previous years, the recovery in corporate lending and the overall acceleration of the Czech economy may provide a positive impetus to stronger investment activity.
The forecast slowdown of the Czech economy to 2.2% yoy in 2026 reflects a likely temporary cooling of economic growth at the end of this year. This is down to 0.4% q-o-q from a surprisingly strong 0.7% improvement in Q3, which a significant part of the consensus finds inadequate relative to monthly data from the economy. At the same time, the weaker performance at the end of this year reflects an expected slowdown in economic activity due to the previous "frontloading" of exports in response to the earlier threat of higher US tariffs.
GDP will thus actually grow by 2.5% over the next year, and 2027 will bring an even slightly better result of 2.6%. The improved outlook reflected the positive surprise from stronger average wage growth in the second quarter, which has had a significant impact on its outlook for the years ahead. With little change in price dynamics, we expect stronger real wage growth: 3.3% next year, following this year's 4.6% improvement (the cumulative improvement has been 1.7 pp in these years). Stronger purchasing power is reflected in a more robust outlook for household consumption, which can additionally benefit from a still high savings rate. We also see upside risks to faster consumption growth, especially if fiscal easing through more generous pension indexation and government wage increases takes hold. On the other hand, higher unemployment (registered at 4.7% in October, 2.8% in Q3) and the impact of expiring low-interest mortgage fixings may dampen spending by some households - although the effect of refinancing from higher rates should neutralise this factor over the next two years.
Petr Gapko, Chief Economist at Moneta Bank:
"This year, household consumption is the dominant economic driver, supported by faster real wage growth. In the coming years, the manufacturing sector will join households in supporting the domestic economy through investment."
Outlook for milder inflation also thanks to monetary policy and the exchange rate of the koruna
The combination of stronger economic and wage growth, together with probably looser fiscal policy, is only partly reflected in the inflation outlook. Stronger wage growth is reflected in a slightly higher outlook for core inflation at 2.5% next year, partly offset by the stronger koruna and the expected unchanged central bank interest rate. However, headline consumer inflation is expected to slow to an unchanged 2.2% yoy next year from 2.5% this year, and we expect it to accelerate slightly to 2.3% in 2027. Expected disinflation next year should reflect weaker pressures from energy prices (the timing of the incoming government's planned actions is uncertain, however). However, these will boost household disposable income, whose consumption may then be inflationary in other segments, which, together with any further fiscal easing, risks a stronger rise in core inflation. As for housing and real estate prices, if supply-side reforms can be kick-started, they may also help to dampen down demand pressures. For example, for investment demand, which also mirrors the future scarcity factor. However, labour and material shortages will continue to limit the positive impact on prices in the construction sector.
Softer consumer price growth will also reflect the CNB's more restrictive monetary policy with a stable interest rate over the next two years. Previous projections already suggested a less convincing reduction in the CNB interest rate from the current 3.50% in spring next year. The rise in core inflation in the third quarter and wage and house price growth in the second quarter produced a rather hawkish surprise. In addition, the outcome of the October election brings rather upside risks to inflation at the end of the forecast horizon. Thus, in this environment, most of the consensus expects interest rates to remain stable. And while less than half of respondents still expect interest rates to fall at present, they either perceive upside risks to inflation from fiscal policy or expect interest rates to fall at or beyond the Forecast horizon. Conversely, three in ten respondents expect CNB interest rates to be higher in 2028 than today.
David Havrlant, Chief Economist at ING:
“In our outlook, we expect policy rates to remain stable. However, overall inflation close to the target would allow the CNB to reduce them in the event of a significant weakening in external demand. Conversely, in an environment of an overheating economy and the risk of a wage–price spiral, the CNB might begin to discuss a possible tightening of monetary conditions.”
Tighter monetary conditions also reflect the outlook for a stronger koruna near 24 against the euro at both the one- and two-year horizons. The stronger koruna in the forecast reflects a combination of improved performance of the Czech economy, the current level of the koruna exchange rate and a weaker US dollar. The outlook for the interest rate differential remains essentially unchanged, as the more hawkish outlook on the CNB has been offset by a less dovish outlook on the ECB as well, where we expect its deposit rate to remain at 2%. Thus, our stable CNB rate outlook implies a slight correction on Czech longer-maturity rates, which by their current higher level, price in a CNB rate hike, which in our outlook limits the appreciation of the koruna against the euro.
Bank loans and deposits
Overall, customer credit is expected to moderate only marginally to slightly below 6%, reflecting the current composition of economic growth. Growth in bank lending to households should strengthen towards 7% this year and next, while growth in lending to non-financial corporations should approach 5% next year, following a weaker growth of almost 4.5% this year, reflecting weaker corporate investment activity. However, data for new lending to non-financial corporations suggest a rebound in corporate lending from the end of the second quarter.
Deposit growth is expected to accelerate to 5% next year and beyond, following a likely slowdown to 4.5% this year (reflected in a slight increase in the deposit-to-lending ratio to 63% this September) from nearly 7.5% growth last year. This was in response to softer growth in corporate credit, falling interest rates, a relative recovery in household portfolio investment rather than savings, as well as a projected lower household savings rate.
Solid and resilient growth trajectory of the Czech economy partly dampens international regional differences
As part of the post-Covidian recovery, the Czech economy continues to outperform Germany, which is expected to outperform it by almost 8% over the forecast horizon (2027). At the same time, Czech GDP is expected to outperform the euro area's post-Covidian trajectory by the end of 2026-2027. In the region, the Czech economy is expected to move closer to Slovakia, stabilise the gap with Hungary, but lose slightly to Poland again. These differences reflect diverging household consumption dynamics. If these upside risks materialise, the Czech economy could further improve its regional position.
In terms of meeting the inflation target, consumer price growth will be slightly above the CNB's target, similar to Poland, allowing the central bank there to ease monetary policy (to 4.25% from 5.25% in the summer) on top of Poland's already accommodative fiscal policy, whose deficit is expected to exceed the 3% fiscal limit by around 3% of GDP on average over the next two years. The European Commission estimates Polish government debt to rise to 70% of GDP by 2027 (vs. 45% in the Czech Republic), which would be 13 bps higher than in 2019 (+8.1 bps in the Czech Republic).
Source: Macrobond, Consensus Economics, CNB, Forecast CBA
Source: Macrobond, Consensus Economics, CNB, Forecast CBA
Czech economic outlook in charts
