Czechia’s economy resumed its expansion in 2024 with real GDP growth at 1.1% and forecast to accelerate to 1.9% in 2025 and 2.1% in 2026. Growth is expected to be driven primarily by domestic demand, while the external environment remains challenging. The resumption of growth in real wages helped households’ consumption re-emerge as the main driver of economic activity, despite still depressed consumer confidence. With ongoing trade wars and an economic slowdown expected for Czechia’s main trading partners, net exports are forecast to contribute negatively to growth. Headline inflation is projected at 2.2% in 2025, with services contributing the most and negative energy inflation offsetting the growth in food prices. A forecasted broad-based decline in inflationary pressures leads to headline inflation dropping to 2.0% in 2026. After the phase-out of energy-related measures and the government’s public finance consolidation package in 2024, public finances are set to stay in deficit at around 2.3% in 2025 and 2.2% in 2026.
| Indicators | 2024 | 2025 | 2026 |
|---|---|---|---|
| GDP growth (%, yoy) | 1,1 | 1,9 | 2,1 |
| Inflation (%, yoy) | 2,7 | 2,2 | 2,0 |
| Unemployment (%) | 2,6 | 2,6 | 2,6 |
| General government balance (% of GDP) | -2,2 | -2,3 | -2,2 |
| Gross public debt (% of GDP) | 43,6 | 44,5 | 45,4 |
| Current account balance (% of GDP) | 1,2 | 0,8 | 0,5 |
Economic activity driven by internal demand
Czechia’s real GDP grew by 1.1% in 2024 driven by both domestic and external demand. GDP growth is set to accelerate in 2025 and 2026 with households’ consumption and investment activity contributing positively and the contribution from net exports turning negative. Household consumption was the main engine of GDP growth in the last two quarters of 2024. While consumer confidence is still affected by perceived risks of economic and income growth uncertainty, household consumption resumed growth from a low base, propelled by real wage increasing again in 2024. As purchasing power has been eroded by high inflation in 2022-23, household consumption volume is still below 2019 levels, with bigger gaps persisting in housing, water and electricity expenditures or in restaurants and accommodation services. Saving rates are expected to moderate in the forecast horizon but otherwise remain high from historical perspective. They are also skewed towards higher-income households who gained the most from the permanent cut in personal income tax effective from 2021 and who have a lower propensity to consume. Despite contracting in 2024, investment is set to resume growth in 2025 and 2026, due to an assumed increased absorption of EU funds, a recovery in the residential construction and FDIs (e.g. a potential significant investment in a new semiconductors manufacturing facility).
Rising trade restrictions affect the Czech economy mostly indirectly via the exposure of Czech automotive components producers to the main trading partner Germany and are set to weigh on the dynamics of exports’ growth. Driven by strong internal demand, imports look set to grow faster than exports and result in a negative contribution of net exports to economic growth. Risks remain to the downside due to the high degree of trade openness of the Czech economy.
Labour market remains tight
Despite the acceleration of economic growth, the unemployment rate is expected to remain stable at 2.6% for the coming two years, one of the lowest in the EU. Recent structural changes in the Czech economy are also reflected in employment, with declining employment in manufacturing, offset by rising employment in services. Nominal wage growth surpassed inflation in 2024 and reached 5.9% and is forecast to continue at 6.5% in 2025 and 5.3% in 2026.
Inflation on a downward path
HICP headline inflation has slowed down to 2.7% in 2024 and is expected to remain low at 2.2% in 2025 and slow further to 2.0% in 2026. Food inflation accelerated in the first months of 2025, propelled by agricultural commodity prices, and is set to add to consumer price pressures in 2025. On the contrary, energy is set to contribute negatively to inflation in 2025 as energy wholesale prices are declining. Services inflation is set to be the highest contributor driven by wage growth. HICP inflation excluding energy, food, alcohol and tobacco is projected above headline inflation at 2.4% in 2024 and 2.2% in 2025.
Czechia’s public finances still in deficit
Czechia’s general government deficit dropped markedly to 2.2% of GDP in 2024, on the back of the phase-out of energy-related measures and of the government consolidation package that further decreased expenditure and increased revenue. The drop in expenditure as a share of GDP was exacerbated by the reduction of government subsidies to renewable energy sources. After a peak in 2023 due to the completion of projects financed by EU structural funds, public investment decreased in 2024 as percentage of GDP.
The budget deficit is set to stay broadly unchanged at 2.3% of GDP in 2025, with a risk of slippages in view of the upcoming general elections in autumn. The expenditure share in GDP is forecast to stay unchanged, as higher employees’ pay and increased government subsidies to renewable energy sources are compensated by higher GDP growth. Revenue is set to be supported by higher social security contributions on account of higher contribution rates, while the growth of taxes on income and wealth is projected to decrease.
Based on unchanged policies, the deficit is expected to decrease to 2.2% in 2026. The revenue-to-GDP ratio is projected to decline, mainly due to the phase-out of the tax on the windfall profits of energy companies. Nonetheless, the expenditure-to-GDP ratio is forecast to decline even faster, as spending on social benefits and public investment is expected to grow slower than GDP.
Public debt remains low compared to the EU average. The public debt-to-GDP ratio is forecast to rise from 43.6% in 2024 to 45.4% in 2026, driven by the negative headline balance, partly offset by nominal GDP growth.