Confidence Indicators

September confidence indicators showed a slight deterioration in overall economic sentiment, but they do not represent a significant negative signal for the economic outlook. Sentiment in the services sector, in particular, is deteriorating, while the retail sector and consumers are sending more favorable signals. Moreover, improved expectations in the industrial sector suggest that the September decline in sentiment may be temporary. For the CNB, in addition to the slight weakening of confidence, slightly more favorable employment expectations and higher price expectations—particularly in the construction and services sectors—will also be important.

Economic sentiment in August deteriorated slightly and fell just below this year’s average. However, it still points more toward a gradual recovery of the Czech economy than a significant slowdown. Consumer and business confidence, in particular, took a turn for the worse, with expectations for future economic developments deteriorating. By contrast, industrial confidence improved slightly, and employment expectations have been rising for the second month in a row. From the CNB’s perspective, the combination of improved labor market expectations and heightened price expectations—particularly in the services sector—remains significant and will continue to warrant a hawkish stance.

Although confidence in the Czech economy improved only slightly in July, it did so for the second month in a row, confirming its resilience despite heightened geopolitical uncertainty. Positive signals are coming mainly from the industrial sector, where assessments of demand and capacity utilization are improving, as well as from employment expectations. At the same time, declining price expectations are easing the CNB’s concerns about persistent inflationary pressures; however, the return of higher oil prices does not yet give the central bank a reason to deviate from its rather hawkish communication.

Economic confidence improved slightly in June. Stronger sentiment among households and manufacturers outweighed continued weakness in retail trade, although retail conditions may improve over the coming months. At the same time, the services sector points to higher risks for both unemployment and core inflation—that is, inflation excluding the volatile prices of energy and food. For the Czech National Bank (CNB), the June sentiment survey suggests a need for caution, reflecting stronger household demand and a renewed rise in price expectations in services.

Slightly worse sentiment in May hides a drop in expected large purchases by consumers. If they translate into worse retail sales results in the coming months, these more modest plans would pose a downside risk to the 2% growth outlook for the Czech economy this year. This is based on a stable growth of almost 3% in household consumption. Other details reveal a slight correction in price expectations, which mitigates upside risks to inflation. The labour market receives a neutral report given its recent trend, i.e. slightly negative.

April sentiment already reflects the impact of the Iranian conflict on the Czech economy more strongly, but unevenly across sectors. Sentiment deteriorated as expected in industry, households and retail trade, while services dampened the overall deterioration thanks to stronger demand and construction. Price expectations continued to rise in industry, households and construction, while retail sales remained close to the long-term average and services corrected slightly after the previous increase. Meanwhile, labour market effects remain limited even in the harder-hit sectors and, in fact, the overall slightly worse sentiment still does not provide an immediate signal for worse growth expectations for the economy.

The Czech economy accelerated at the end of last year and maintained its inflationary bias due to strong household consumption and strong wage growth unsupported by productivity. However, the central bank's New Year communication hinted at a possible interest rate cut. However, this rhetoric has been changed by the recent energy shock. For the central bank, the dynamics of core inflation will be key in the coming months, but also the pass-through of higher oil and gas prices to other price segments in the economy. March price expectations rose, but their April perception will be more guiding for the central bank.

Comment by Jaromír Šindel, Chief Economist of the CBA: January show stable economic sentiment, but industry continues to be plagued by weak demand with negative consequences for investment. On the other hand, consumer purchasing plans remain full of optimism, also thanks to both lower price expectations, which are dampened by industry but not services, and better expectations on the labour market, where the service sector, which is lacking more workers, is making a positive contribution. Thus, it looks like continued solid economic growth this year with noticeably lower headline inflation. This combination is likely to shift the discussion at the CNB from rate stability or growth to rate stability or a possible decline, which is, however, not certain given the ongoing "services inflation" and the change in fiscal policy settings.

Comment by Jaromír Šindel, Chief Economist of the CBA: The deterioration in economic sentiment in December does not yet represent a turning point for the outlook for the Czech economic recovery, which anticipates a deterioration in dynamics at the end of the year 2025. Household consumption plans remain resilient, while industry and the labour market are sending rather cautious signals, which poses a risk to the expected recovery in investment activity and the early stabilisation of rising registered unemployment. The outlook for lower administered energy prices supports falling price expectations, but persistent pressures in construction and services continue to dampen disinflationary optimism, sending a neutral rather than dovish message to the central bank.

Comment by Jaromír Šindel, Chief Economist of the CBA: November's confidence in the Czech economy weakened slightly, but still suggests continued growth. However, there are significant differences across sectors, reflecting the looming change in economic policy after the elections. Households remain visibly more optimistic, thanks to rapidly rising wages and perhaps in response to the new government's plans, while industry is returning to earlier weakness. Services are again reporting rising price expectations, keeping the central bank in hawkish mode.

Comment by Jaromír Šindel, Chief Economist of the CBA: Stronger sentiment in October suggests a return to stronger GDP growth for the end of this year after a probably slightly worse result in Q3. Higher price expectations may delay the return of core inflation to the target.

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jaromir Šindel, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA

Economic commentary by Jakub Seidler, Chief Economist of the CBA