Slight Downgrade in Growth Forecasts

The czech National Bank (CNB) has adjusted its economic growth projections downward by a marginal 0.1 percentage point for both this year and the next. The revised forecast now anticipates growth of 2.5% for 2025 and 2.2% for 2026. This adjustment follows the release of the central bank’s latest macroeconomic forecast on Wednesday, reflecting concerns about external economic pressures.

Domestic Consumption Drives Growth,Exports Lag

According to the CNB,the Czech economy’s growth is primarily being fueled by robust household consumption. This is supported by increases in real wages and a favorable interest rate surroundings. Though, a meaningful drag on economic performance comes from weakened foreign demand, particularly stemming from a slowdown in European industrial activity. This decline in external demand is expected to curtail export growth for the Czech Republic throughout the current year.

Exports will therefore slow the Czech economy this year.

Aleš Michl, Governor of the Czech National Bank

The Trump Factor: Trade Policy Uncertainty Looms

Looking ahead, the CNB highlights the uncertainty surrounding the trade policies of the United States under the leadership of President Donald trump as a key risk factor. Trump’s administration has already implemented significant tariff increases,impacting not only European partners but also global trade flows. The potential for further trade barriers introduces considerable volatility into the economic outlook.

The precise impact of these new international trade barriers remains difficult to quantify, as the specific details of future measures are often unclear. As Governor Michl noted, Their influence on economic growth and price development in the medium and long term remains uncertain. This uncertainty complicates forecasting and necessitates a cautious approach to economic policy.

Inflation Under Control: A “Fantastic Success”

despite the downward revision in growth forecasts, the CNB expressed satisfaction with the current inflation environment. The central bank’s forecast indicates that year-on-year inflation will remain slightly above the CNB’s target for the remainder of the year, averaging 2.5% for the entire year. Recent data from the Czech Statistical Office showed year-on-year inflation at 1.8%,the lowest level in seven years.

While Governor Michl lauded this as a fantastic success, he emphasized the importance of ensuring that consumer price growth remains stable and does not resurge in the future. Maintaining price stability is a key objective of the CNB’s monetary policy.

Alignment with Ministry of Finance Forecasts

The CNB’s macroeconomic forecast for the current year aligns closely with the April projections released by the Ministry of Finance. The ministry also anticipates economic growth of approximately 2%, with average inflation expected to reach 2.4% this year. However, the ministry of Finance holds a slightly more optimistic view regarding economic development in the coming year, projecting a gross domestic product (GDP) increase of 2.4%.