OECD Economic Outlook, Volume 2026 Issue 1

Czechia

Growth is set to moderate to 1.9% in 2026 before slightly strengthening to 2.1% in 2027. Higher energy and food prices will erode households’ real disposable income, weighing on consumption. Despite high uncertainty, investment should remain robust in 2026, supported by EU structural and recovery funds, before slowing in 2027. Export growth is expected to strengthen in 2027. Risks to growth remain skewed to the downside, notably from a prolonged conflict in the Middle East that disrupts supply chains or a renewed intensification of trade restrictions.

Monetary policy should continue to ensure inflation pressures are contained and expectations anchored. Energy cost support should be better targeted and preserve incentives to cut fossil fuel use. Pension reforms enacted in 2024 should be fully implemented to address ageing costs. Faster renewable deployment and stronger innovation support, especially for small firms, would enhance energy security, productivity, and competitiveness.

Economic growth slowed in early 2026

Quarterly GDP growth slowed to 0.2% in the first quarter of 2026. Growth was supported by domestic demand while international trade had a negative impact. Consumer and industry confidence dropped in April and May. However, the manufacturing PMI improved further in April and passenger car production picked up in the first four months of 2026, with particularly strong growth of electric and hybrid vehicle production. Headline consumer price inflation rose to 2.5% in April on the back of energy price increases, while service price inflation is sticky and elevated at 4.6%. One-year-ahead consumer price inflation expectations of financial markets increased to 2.7% in April. The labour market has cooled, but the unemployment rate, at 3.1% in March, remains one of the lowest in the OECD. Nominal wage growth continues to be robust, driven by persistent labour shortages and an increase in the minimum wage in January 2026.

Czechia

Source: Czech Statistical Office; S&P Global; and OECD Prices database.

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Czechia: Demand, output and prices

Statlink

Czechia imports about 40% of its energy needs but the share imported directly from the Middle East is very low. In late March, the government announced the release of 100 thousand tonnes (or about 10%) of its emergency oil reserves. In early April, the government introduced caps to retail petrol and diesel profit margins and cut the excise tax on diesel. In mid-May, retail prices of petrol and diesel were around 25% above the levels in late February. Retail electricity prices have fallen in year-on-year terms, mainly due to the abolition of the renewable energy fee.

Monetary policy is slightly restrictive while fiscal policy is expansionary

The monetary policy rate, at 3.5% since May 2025, is slightly restrictive. The projections assume a temporary and modest policy rate increase to 3.75% from mid-2026 to end-2027. Fiscal policy will be modestly expansionary in 2026 reflecting the approved budget, additional infrastructure investment, and the transfer of the financing of support for renewable energy from households and firms to the state budget. In 2027, the budget deficit is projected to deteriorate further as the government is assumed to implement measures of its t programme (e.g. accelerated depreciation, higher family benefits). This partly offsets the fiscal drag from the end of drawing EU recovery and resilience funds at the end of 2026.

Growth is set to moderate

Higher energy and food prices will weigh on household real disposable income and slow consumption growth. Despite high uncertainty, investment growth will remain robust in 2026 due to the stronger use of EU structural and recovery and resilience funds, before slowing in 2027. After modest growth in the near-term, exports are set to strengthen in 2027, supported by the fiscal expansion in Germany. Risks to growth are skewed to the downside. A prolonged conflict in the Middle East with more significant disruption of supply chains or a re-intensification of US trade restrictions would slow the growth of the energy-intensive and export-oriented economy. On the upside, a further fall of the historically high savings rate could support stronger private consumption growth.

Energy cost support should be better targeted and structural reforms accelerated to enhance energy security and competitiveness

The central bank needs to remain vigilant and ensure that underlying inflationary pressures are durably contained, and that inflation expectations remain well anchored. Energy cost support should remain temporary and be better targeted to the most vulnerable households and businesses, while maintaining incentives to reduce fossil fuel consumption. Reforms enacted in 2024 to improve the overall sustainability of the pension system should be fully implemented to mitigate ageing-related spending pressures. Accelerating the deployment of renewables, including by further simplifying permitting procedures, would contribute to energy security. Strengthening research intensity and innovation capacity, for instance by better targeting business support for R&D to young and small firms and developing capital markets, would help boost productivity and competitiveness.