The Czech Banking Association (ČBA) has revised its forecast for economic growth upward to 2.1 percent for the current year, a significant improvement from the 1.7 percent predicted in May. This positive adjustment comes on the heels of stronger export performance and less severe impacts from U.S. tariffs on the European Union than initially feared.
While American tariffs will still hamper the Czech economy both this year and next—reducing growth by an estimated 0.6 percentage points—the impact is less severe than the 0.8 percentage points projected earlier this year. This moderation is largely due to the United States implementing lower-than-announced tariffs on automobile imports.
Household consumption is expected to be the primary driver of Czech economic growth, with a projected increase of 2.6 percent. According to Petr Dufek, Chief Economist at Creditas Bank, “The much-needed investments essential for building the potential of the Czech economy in an increasingly competitive international market won’t begin to materialize until next year at the earliest.”
The ČBA has simultaneously adjusted its inflation outlook upward to 2.5 percent for the year, compared to the 2.3 percent projected in May. This inflation will be driven by rising food and service prices, as well as increasing real estate costs. Real wages are expected to grow by 3.6 percent, though average gross wages, when adjusted for inflation, won’t reach pre-pandemic levels until next year. A return to the historic peak levels of 2021 isn’t anticipated until 2027.
Unemployment is forecast to rise to 4.4 percent this year, up from 3.8 percent last year, largely due to industrial layoffs. However, this upward trend is expected to stabilize next year. The Czech National Bank’s base interest rate will likely remain at 3.5 percent for the remainder of the year, with a potential reduction to 3.25 percent in the first quarter of next year.