On a quarter-on-quarter basis, GDP increased by 0.7%, slightly below the preliminary reading of 0.8%. The uptick was largely fueled by robust household consumption, continued government spending, and domestic inventory buildup, even as net exports exerted a negative influence on overall performance.

 “Strong real income growth and a slight drop in the household savings rate contributed to increased consumer spending, which remains the backbone of the recovery,” said a ČSÚ spokesperson. Real household consumption rose by 2.7% compared to the same period last year, while the savings rate declined to 18.3% from 19.8%, indicating greater consumer confidence.

 The data also pointed to a positive contribution from gross capital formation, particularly due to inventory accumulation, though fixed investment weakened. Corporate investment declined by 0.8%, raising concerns about the sustainability of the current pace of growth. Still, the value-added contributions from industrial production, construction, and the IT and financial sectors remained solid.

 On the external front, foreign trade continued to act as a drag. Although some short-term gains in exports were recorded, analysts noted they may reflect temporary stockpiling ahead of anticipated global trade tensions, particularly with the United States.

Despite this, the Czech Republic outperformed many of its Central and Eastern European peers. Hungary, for instance, registered a contraction in Q1, underscoring the relative resilience of the Czech economy.

 Analysts and financial institutions now forecast full-year GDP growth of around 2.0%, a notable improvement from 1.0% in 2024. The outlook remains cautiously optimistic, with household demand expected to remain the primary driver of economic expansion.

 However, risks remain. The Czech National Bank warned that increasing protectionist measures globally could undermine export demand in the coming quarters, particularly if U.S. tariffs take effect. A potential slowdown in global industrial demand could also weigh on the country’s manufacturing-heavy economy.

Inflation, which hovered around 2.4% in May, remains under control, aligning with the central bank’s target and offering room to maintain accommodative monetary policy if needed.

As the second quarter unfolds, policymakers and businesses alike will be watching closely to see whether the economy can maintain its current trajectory or if headwinds from abroad will start to take their toll.

Sources: Czech Statistical Office, Radio Prague International