Czech Republic: Near-term recovery, long-term struggle

Czech Republic will be among the fastest-growing EU economies in 2025-2026 after lagging its EU peers in the last four years. However, much of this will be catch-up growth, mainly in consumer spending. Relative to pre-pandemic, the economy will remain in bottom one-third of the EU, behind its CEE peers.

What you will learn:

• Dismal consumer spending was the main cause of the economic slump. As we anticipated, the consumption recovery continues to be gradual, despite improving purchasing power. Meanwhile, manufacturing weighs on growth. We expect a cyclical rebound in the sector as lower rates boost demand, but not before H2 2025.
• Macroeconomic policy will support the near-term outlook. Given the lags in monetary policy transmission, the bulk of the boost from rate cuts to consumption and investment is yet to come. On the fiscal side, consolidation will only be modest in 2025 as public investment is set to increase.
• But improving near-term prospects turn our attention to the numerous medium-term structural challenges. There is a shortfall in capital spending, which weighs on productivity. The labour market is stifled, the economy is struggling to move up the value chain, the demographic outlook is poor and the government budget’s structure isn’t fit to meet the upcoming challenges.