The forecast reflects a slight downward revision compared to earlier projections, largely due to the economic consequences of ongoing geopolitical instability, including tensions in the Middle East. Even so, domestic demand is expected to remain the main driver of growth, supported by improving household consumption and a gradual recovery in private investment activity. At the same time, elevated uncertainty and higher energy costs are likely to limit overall momentum.

Net exports are expected to continue acting as a drag on overall GDP performance. Stronger domestic consumption will increase import volumes, while exports are likely to face challenges stemming from weaker foreign demand and ongoing trade frictions. The export sector is also constrained by reduced order volumes from key markets. A more supportive external environment in 2027, particularly among major trading partners, could help revive export activity and contribute to slightly faster economic expansion in that year.

Inflation is projected to remain relatively stable, averaging 2.5% in 2026 and rising slightly to 2.8% in 2027. Price dynamics have been influenced by earlier declines in energy costs, although recent geopolitical developments have led to renewed upward pressure in energy markets. Services inflation, particularly in housing and rental segments, continues to play a significant role.

Assuming energy markets stabilize, inflation is expected to stay within a manageable range over the forecast horizon.

The labour market continues to demonstrate resilience. Although unemployment is expected to rise slightly to 2.9% in 2026 before easing to 2.7% in 2027, labour shortages remain widespread, especially in construction and service sectors. This imbalance continues to support wage growth. Real wages are expected to increase in both years, driven by steady demand for labour and moderate inflation, although export-oriented industries may face headwinds linked to global trade conditions.

Public finances remain moderately strained. The general government deficit stood at 2.1% of GDP in 2025 and is projected to widen to 2.6% in 2026, reflecting higher public investment, wage growth in the public sector, and increased social spending. Government debt is expected to stabilize at around 45.6% of GDP, slightly better than earlier estimates due to stronger nominal GDP performance.

The economic outlook is subject to several key risks. The most significant is a potential escalation or prolongation of geopolitical tensions in the Middle East, which could further disrupt global supply chains and push energy prices higher. Such developments would likely weigh on both industrial production and household consumption.

Additional risks include rising global trade tensions, particularly related to U.S. tariff policy, which could negatively affect export-driven industries.

Overall, the Czech Republic continues to offer a relatively stable macroeconomic environment with moderate growth potential. While domestic demand and investment provide a solid foundation, external conditions remain uncertain. For investors and international partners, opportunities exist primarily in domestically oriented sectors, though careful attention to global risks and supply chain resilience will remain essential.

CzechTrade Office in Thailand

Source: Ministry of Finance of the Czech Republic