OECD Economic Outlook, Volume 2025 Issue 2

Czechia

GDP growth is projected to reach 2.4% in 2025, 2% in 2026 and 2.1% in 2027. Strong private consumption will remain the main growth driver. Investment is expected to rise, supported by Recovery and Resilience funds until the end of 2026. Export growth will be subdued in the near term due to trade restrictions but should strengthen as foreign demand—particularly from Germany—recovers. Risks to the outlook include escalating trade and geopolitical tensions, which could dampen growth, and more expansionary domestic fiscal policy, which may lead to higher inflation.

Monetary policy must remain vigilant amid uncertainty around trade and fiscal developments. Prudent fiscal policy is needed to build buffers for future shocks and address spending pressures from defence, population ageing and the green transition. Structural reforms—such as easing entry barriers in professional services and improving regulatory impact assessments—can enhance competition and productivity.

Private consumption is driving robust economic growth

Economic activity continued to expand robustly in the third quarter of 2025, at 2.7% year-on‑year, driven by household consumption and gross capital formation. High frequency indicators point to some moderation of growth in the near term: retail sales growth remained solid but moderated in the third quarter, industrial production increased slightly in September but remains subdued, and the manufacturing purchasing managers index further weakened in October. Consumer price inflation stood at 2.5% in October, while core inflation (excluding food and energy prices) remained elevated at 3.3%. Despite some cooling, the labour market remains tight. While the number of vacancies per jobseeker continued to decline, the unemployment rate, at 3% in September, remains one of the lowest in the OECD and labour shortages persist, contributing to strong nominal wage growth.

Czechia

1.3-month moving average

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

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Czechia: Demand, output and prices

Statlink

After some front-loading of exports to the United States in the first quarter of 2025 ahead of the tariff increases, foreign demand remains weak. The US tariffs affect the Czech economy mainly via European manufacturing supply chains, especially for automotive parts. Industrial production is subdued and export orders have been volatile, especially in the automotive sector. The koruna exchange rate has appreciated vis‑à‑-vis the euro since the beginning of 2025.

Monetary policy is slightly restrictive while fiscal policy uncertainty is high

The central bank lowered its policy rate from 7% to 3.5% between December 2023 and May 2025 and has kept it unchanged since then. Monetary policy is projected to remain slightly restrictive in 2025 and broadly neutral in 2026 and 2027, with the policy rate declining to 3%. The fiscal stance is estimated to be broadly neutral in 2025. Given the political uncertainty, the projections also assume a broadly neutral fiscal stance in 2026, while the stance is slightly restrictive in 2027, due to the end of drawing of EU recovery and resilience funds which is only partly offset by higher usage of EU structural funds.

Growth is set to moderate slightly

Robust household consumption is expected to remain the main driver of GDP growth, albeit at a slightly more moderate pace due to a projected slowdown in wage growth. Investment is expected to rise in 2026, driven by increased use of recovery and resilience funds, before easing in 2027 as the disbursement period ends. Export growth will remain subdued in the near term, reflecting rising trade restrictions, but is projected to strengthen gradually as foreign demand recovers—partly bolstered by fiscal expansion in Germany. Core inflation is set to decline gradually towards the 2% target, in line with moderating labour cost growth. Risks to the GDP growth outlook are tilted to the downside. A further escalation in trade and geopolitical tensions could undermine confidence and dampen foreign demand. Moreover, the anticipated positive spillovers from Germany’s fiscal stimulus may be delayed. Conversely, a more expansionary domestic fiscal stance than currently assumed could fuel inflationary pressures and prompt monetary tightening.

Fiscal policy should remain prudent while easing regulations can spur growth

Monetary policy needs to remain vigilant given uncertainty about future trade policy and domestic fiscal policy. If inflationary pressures durably subside, the central bank should further ease monetary restrictiveness. Fiscal prudence is needed to build buffers for future shocks and spending pressures related to military spending, population ageing and the green transition. Recent reforms to improve the overall sustainability of the pension system should be fully implemented. Regulations in professional services remain more restrictive than in other OECD countries. Easing entry and conduct regulations in professional services can boost competition, business dynamism and productivity growth. Moreover, the role of the Regulatory Impact Assessment (RIA) Board, a watchdog, could be strengthened to ensure high quality RIAs.