GDP growth decelerates but remains solid in Q2

GDP growth revised upward: GDP growth declined to 0.5% on a seasonally and calendar-adjusted quarter-on-quarter basis in the second quarter (Q1: +0.7% qoq s.a.). However, there is still space for optimism as the reading was above the average of the last two years on the same basis and marked the seventh consecutive expansion. Moreover, the figure was revised up from an initial estimate of just 0.3% growth. On a seasonally and calendar-adjusted annual basis, GDP growth accelerated to 2.6% in Q2 from 2.4% in the previous quarter, the best result since Q2 2022.

Net trade drags on GDP growth, but domestic demand keeps momentum solid: The sequential slowdown was primarily driven by weakness in the external sector. Export growth fell sharply, from 3.0% in Q1 to just 0.3% in Q2, likely weighed down by the prolonged slump in the German industrial sector and rising global trade tensions. Imports also lost momentum, growing 1.5% in Q2 from 2.5% in Q1. However, the sharper export slowdown meant net trade weighed on headline growth. Meanwhile, the domestic sector was the main engine of economic growth. Private consumption accelerated to 1.0% in Q2 (Q1: +0.4% qoq s.a.) as households benefited from softer price pressures and a stronger koruna compared to the prior quarter. Moreover, government consumption rebounded 1.2% in Q2 (Q1: -0.3% qoq s.a.), while fixed investment rose at a slightly faster pace of 0.5% (Q1: +0.4% qoq s.a.).

Economy to gain steam in 2025: Our panel expects sequential GDP growth to hover near Q2’s pace in the coming quarters. Still, in 2025 as a whole, economic momentum should pick up and roughly double from 2024’s rate. Lower interest rates should fuel a rebound in fixed investment, while stronger EU demand will likely buttress exports. Moreover, consumer spending should accelerate on the back of a still-tight labor market. A weaker-than-expected German economy—the top trading partner—is a downside risk.

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