Confidence in Czech economy reaches highest level in nearly three years

Confidence in the Czech Republic’s economy rose again in March, reaching its highest level since May 2022. According to new data released by the Czech Statistical Office (ČSÚ), the overall confidence index increased by 1.7 points compared to February, reaching 99.5. Both business and consumer confidence contributed to the improvement, with business sentiment now at its highest point since July 2022.

Jiří Obst from the ČSÚ noted that business confidence has increased for the third consecutive month, nearing its long-term average. Consumer confidence also saw a positive shift after three months of decline, driven by a reduction in pessimistic expectations about the Czech economy’s outlook over the next year.

The business confidence index rose by 1.6 points to 99.6. The most significant contribution came from expectations of stronger demand in selected service sectors. Across all industries, confidence increased: retail saw the largest jump, up 2.3 points to 102.2, followed by services (up 1.8 to 102.3), industry (up 1.3 to 94.8), and construction (up 1.1 to 115.8).

Consumer confidence climbed by 2.2 points to 98.8. While the number of consumers expecting the economic situation to worsen over the next year decreased slightly, this share remains relatively high. There was a modest decline in households anticipating a deterioration in their financial situation, while assessments of current financial status remained unchanged. The number of respondents avoiding large purchases also fell slightly.

Analysts responded positively to the latest figures, suggesting that the shift in consumer sentiment may help accelerate economic growth this year. Radomír Jáč of Generali Investments highlighted that March marked the first improvement in consumer sentiment since November, though he cautioned about rising price expectations in sectors like construction, retail, and industry.

Dominik Rusinko of ČSOB said the data align with the bank’s expectations of a gradual recovery in the domestic economy. He noted that renewed consumer confidence—combined with rising real wages—should support a rebound in consumer demand, which is expected to be the primary driver of growth in 2025.

Vít Hradil from Cyrrus also saw the data as unusually positive, with improvements reported in every monitored sector. He emphasized that the sentiment index is now approaching the threshold that separates pessimism from optimism, bringing the economy close to what could be described as a broadly positive outlook.

Petr Javůrek, chief analyst at Provident Financial, predicted a continued but modest rise in consumer confidence, likely hovering near its long-term average. He pointed out that the consistent growth in business confidence could suggest that fewer households expect their financial situation to worsen in the near future.

Petr Dufek of Creditas Bank took a more cautious stance, noting that while the data suggest gradual economic improvement, there are no signs of a significant boom. He believes that the first quarter of 2025 will likely see steady growth, supported mainly by consumption and service demand, though overall expectations should remain measured.

Finally, from a monetary policy perspective, the Czech National Bank may view this surge in confidence as a reason to hold off on further rate cuts. Jáč noted that the Bank Board might interpret the survey results as a call for caution at its upcoming meeting on 26 March.

Source: CTK