Czech Republic: Economy records slowest increase since Q1 2024 in Q2
GDP growth disappoints markets in Q2: According to a preliminary estimate, GDP growth waned to 0.3% on a calendar- and seasonally adjusted quarter-on-quarter basis in the second quarter (Q1: +0.7% qoq s.a.), marking the slowest growth since Q1 2024 and falling short of market expectations.
On an annual, calendar- and seasonally adjusted basis, economic growth was stable at Q1’s 2.4% in Q2.
External demand drags on GDP growth: A complete breakdown of the reading will not be released until 29 August. However, the statistical office noted that deceleration in sequential GDP growth was driven by weakening net foreign demand; this is likely as the Czech Republic is among the economies that are most vulnerable to the U.S.’ recent tariff hikes. That said, private consumption strengthened as softer inflation and interest rates in Q2 compared to Q1 likely supported household budgets.
Economic growth to stabilize: Our panelists expect sequential GDP growth to broadly stabilize in the coming quarters. Accordingly, in 2025 as a whole, economic growth should double from 2024’s rate. Lower interest rates should fuel a rebound in fixed investment, and stronger EU demand will likely buttress exports. Moreover, consumer spending should accelerate on the back of a still-tight labor market. That said, rising U.S. tariffs will likely cap the acceleration in exports, keeping GDP growth below the pre-pandemic 10-year average of 2.5% in 2025. A weaker-than-expected German economy—the top trading partner—is a downside risk.
Panelist insight: Commenting on the outlook, Kevin Daly and Basak Edizgil, analysts at Goldman Sachs, stated:
“We […] expected growth momentum to slow in the remainder of the year but today’s print suggests that the slowdown might be happening slightly earlier than our expectation. Nevertheless, given the volatility of post-pandemic GDP growth and the potential for large revisions of early GDP prints, we will wait for more detailed data.”