The Czech Banking Association (CBA) has revised its economic forecast for 2025, predicting a 2.1% increase in GDP, signaling a gradual economic recovery following last year’s 1% contraction. Growth is expected to accelerate to 2.4% in 2026, but risks related to global trade wars could dampen the outlook by 0.3 percentage points per year, the association warned. Despite the overall optimistic trajectory, the latest forecast marks a downgrade from the 2.3% growth previously projected for 2025 and the 2.6% forecast for 2026 in November. The CBA attributes the adjustment to external risks, particularly ongoing geopolitical tensions and trade protectionism that could disrupt supply chains and impact exports. Inflation is expected to remain at last year’s level of 2.4% in 2025, before slowing slightly to 2.2% in 2026. The CBA maintains its expectation that household consumption will be the primary driver of economic growth, projecting a 2.6% increase in 2025, followed by 2.7% in 2026. Investments, which declined by 1.9% last year, are also anticipated to recover, further stimulating economic expansion. “There is broad consensus among CBA members that the Czech economy will continue to accelerate. We anticipate GDP growth surpassing 2% this year and potentially reaching 2.5% in 2026. However, this scenario assumes that large-scale trade wars do not emerge, as they pose a real risk to global economic stability,” said Pavel Sobíšek, Chief Economist at UniCredit Bank. Even with the possibility of trade wars slowing growth by 0.3 percentage points, Sobíšek emphasized that it should not significantly disrupt the Czech economy’s overall recovery. The labor market is expected to remain stable, though unemployment is set to rise slightly to 4.1% in 2025, up from 3.8% last year. However, the CBA predicts a modest decline to 4% in 2026, as employment in other sectors compensates for job losses in export-driven industries. “The unemployment rate should not rise significantly from current levels. The risk for the labor market is a prolonged decline in export-oriented industries, which may not be fully offset by job creation in other sectors such as services and public administration,” explained Jan Bureš, Chief Economist at Patria Finance. Wages, meanwhile, are expected to continue growing but at a slower pace. The CBA anticipates nominal wage growth slowing to 5.8% in 2025, down from 6.9% last year. However, real wages—adjusted for inflation—should increase by 3.3% this year, marking progress toward pre-pandemic salary levels, which the association expects to be fully restored by 2026. According to the forecast, real wages will only surpass their 2021 peak in 2027, underscoring the long-term economic impact of the pandemic, inflation, and global uncertainty. The Czech National Bank (CNB) is expected to continue easing monetary policy, with the key interest rate projected to decline from 3.75% to 3.25% by the end of 2025. The downward trend should continue into 2026, when the rate is expected to reach 3%. The Czech koruna is also forecast to strengthen, with the exchange rate expected to fall below CZK 25 per euro by the end of the year, continuing its appreciation trend into 2026. “Trade wars pose a negative risk to the koruna, though this could be partially offset by U.S. efforts to pressure Russia to end its aggression in Ukraine,” noted Jaromír Šindel, Chief Economist at the CBA. The CBA’s projections align closely with the CNB’s latest estimates, which forecast 2.0% GDP growth for 2025, but are slightly more conservative than the Ministry of Finance’s January outlook of 2.3% growth. Similarly, inflation expectations are largely in agreement, with the CNB predicting 2.4% inflation in 2025, while the Ministry of Finance projects a slightly lower rate of 2.3%. While the Czech economy is set for moderate expansion, external risks—particularly trade wars—pose potential threats. Should global protectionism escalate, it could disrupt supply chains, impact exports, and dampen growth prospects. However, the combination of rising household consumption, wage recovery, and a resilient labor market provides a solid foundation for economic stability. With gradual monetary easing and strengthening currency trends, the Czech economy appears well-positioned to navigate uncertainties while maintaining steady growth in the years ahead. Source: CTK