GDP growth decelerates in Q1

Economic growth continues in Q1: According to a preliminary estimate, the economy expanded 0.5% on a calendar- and seasonally adjusted quarter-on-quarter basis in Q1 (Q4 2024: +0.7% qoq s.a.), matching our Consensus. The result marked the sixth consecutive quarterly expansion and outpaced the average pace of growth in the post-pandemic era. On a calendar- and seasonally adjusted annual basis, economic growth rose to 2.0% in Q1 (Q4 2024: +1.8% yoy s.a.), marking the best result since Q3 2022.

Private consumption leads the expansion: A complete breakdown will be released on 30 May, but the statistical office noted that the result was driven by private consumption and fixed investment: The former was likely bolstered by tighter labor market conditions and the latter by interest rate cuts. Moreover, external demand also contributed positively, with a rebound in the German economy in Q1 likely providing support.

GDP growth to accelerate but miss the 10-year pre-Covid average in 2025: Our panelists expect GDP growth to broadly stabilize around Q1’s sequential pace in the coming quarters. Accordingly, in 2025 as a whole, economic growth should double from 2024’s level. Lower interest rates should fuel a rebound in fixed investment, and stronger EU demand will likely buttress exports. Moreover, consumer spending should provide impetus on the back of healthy real wage growth. That said, rising EU-U.S. trade tensions prompted our panelists to trim their forecasts recently, and GDP growth is projected to remain below the pre-pandemic 10-year average of 2.5% through 2026. Higher-than-expected U.S. tariffs and a weaker-than-anticipated German economy are downside risks.

Panelist insight: Commenting on the outlook, Goldman Sachs’s Kevin Daly and Basak Edizgil stated: “We find that the Czech Republic is among the most vulnerable EM economies to US tariff increases, reflecting their exposure to trade diversion effects (given the importance of auto and capital goods production for Czechia). We have therefore downgraded sequential growth for the remainder of this year, and continue to forecast growth to remain below trend in 2025.”

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