Slower GDP growth in Q2 likely due to weaker June
Economic commentary by Jaromir Šindel, Chief Economist of the CBA
Surprisingly, gross domestic product (GDP) growth slowed noticeably to 0.2% quarter-on-quarter in the second quarter, while it had still reached 0.7% in the first quarter. This development is probably due to weaker industrial performance in June and less favourable developments in foreign trade.
Employment continued its solid but slightly subdued expansion, suggesting only a very gradual improvement in labour productivity. This is due to a still structurally tight labour market despite a rise in registered unemployment.
US tariffs will hamper the Czech economy's recovery in the second half of the year (detailed below), which is likely to slow Czech economic growth to below 2% y/y from 2.4% in Q2. Barring a positive surprise in the June data and a positive revision to the second quarter data on 29 August, full-year GDP growth could reach around 2% in 2025 after 1.1% in 2024.
Structure of growth: consumption supports, industry and exports weaken, with only a marginal increase in productivity due to a structurally tight labour market
Quarter-on-quarter gross domestic product (GDP) growth in the second quarter surprised with a more pronounced slowdown to 0.2% from 0.7% in the first quarter of this year (there was a slight positive revision there or in the earlier quarter). In particular, private consumption, trade, and construction boosted its growth, while foreign trade and manufacturing took a bite out of the Czech economy's performance, as preliminary comments from the CZSO suggest. If value added growth also only reached 0.2%, then this would be a significant slowdown from 0.9% in the first quarter or from an average of 0.7% in the last two quarters, but also from an average of 0.3% in 2024. Comment on GDP growth in the previous quarter here.
As a result, annual GDP growth probably slowed slightly to 2.4% from a likely revised 2.5% in the first quarter. At the same time, employment increased by 1% y-o-y, which, while a slight slowdown, contributed to only a marginal improvement in labour productivity.
Quarter-on-quarter employment growth was 0.4% in the second quarter, slightly below the half-percentage-point gain of the first quarter. Nevertheless, it remains stronger than the average 0.1% growth recorded in 2024. This contrasts with higher registered unemployment, suggesting that the labour market is not cooling significantly but rather undergoing structural changes.
On US tariffs: According to a May survey by the Czech Banking Association, 12% US tariffs would dampen the growth of the Czech economy by around 0.8% points during 2025 and 2026. If we assume slightly higher tariffs than 15% (due to steel with aluminium), then their additional negative impact on the Czech economy would be about four tenths of a percentage point over this year and next. After promising GDP growth at the beginning of the year, this could result in economic growth of around or slightly below two percent this year. On a relatively positive note, lower final tariffs on cars will lead to less negative impacts on our largest trading partners, Germany and Slovakia.
Economic growth slowed more sharply to 0.2% QoQ in Q2
The slowdown was not surprising, but the word "stronger" was, indicating weaker economic activity in June
