According to the Czech Ministry of Finance’s April macroeconomic forecast, the Czech economy is expected to grow by 2.1% in 2026. This represents a slight downward revision compared to earlier estimates due to the impact of the ongoing conflict in the Middle East. Despite this adjustment, growth is projected to strengthen to 2.4% in 2027. Economic activity will be driven primarily by domestic demand, supported by a continued recovery in household consumption and a gradual revival of corporate investment. However, elevated uncertainty and rising energy prices are expected to constrain overall economic momentum.

External trade is likely to remain a drag on growth. While stronger domestic demand will increase imports, exports are expected to face headwinds from trade barriers and a persistently weak volume of foreign orders. As a result, the contribution of net exports to GDP growth is projected to remain negative. Looking ahead to 2027, improved economic performance among key trading partners could support Czech exports and contribute to a moderate acceleration in growth.

Inflation and Labour Market Remain Stable

Inflationary pressures remain relatively contained, with average inflation projected at 2.5% in 2026 and 2.8% in 2027. Goods prices have been subdued partly due to earlier declines in energy costs, while recent geopolitical developments, particularly the escalation of tensions in the Middle East, have led to renewed increases in energy prices. Service sector inflation, especially related to housing and rental costs, continues to be a contributing factor. Assuming stabilization in commodity markets, inflation is expected to remain within a manageable range.

The Czech labour market continues to show resilience despite a slight increase in unemployment. Labour shortages persist across several sectors, particularly in construction and services, sustaining upward pressure on wages. The unemployment rate is expected to reach 2.9% in 2026 before declining to 2.7% in 2027. Real wages are projected to grow in both years, supported by stable inflation and continued demand for labour, although industrial sectors face challenges linked to global trade developments.

Public Finances and Key Risks

Public finances remain under moderate pressure. The general government deficit reached 2.1% of GDP in 2025 and is expected to widen to 2.6% in 2026, driven by increased investment activity, higher public sector wages, and rising social expenditures. Government debt is forecast to stabilize at around 45.6% of GDP, slightly below previous estimates, supported by stronger nominal economic performance.

The economic outlook is subject to significant downside risks. The most prominent is a potential escalation or prolongation of the Middle East conflict, which could further disrupt global supply chains and lead to sustained increases in energy prices. Such developments would negatively affect both industrial output and household consumption. Additional risks stem from global trade tensions, particularly U.S. tariff policies, which could impact export-oriented sectors.

Overall, the Czech Republic continues to offer a stable and predictable macroeconomic environment with moderate growth prospects. For international trade partners and investors, opportunities remain in sectors linked to domestic demand and investment, although careful risk management and supply chain diversification will be essential in navigating the evolving global landscape.

Source: mf.gov.cz

Prepared by the team of foreign offices CzechTrade Osaka and Tokyo