Czechia outlook: Economic recovery expected to continue

The Czech economy is undergoing a gradual recovery, expected to strengthen over the next two years. In addition to continued favorable consumption trends, this will be supported by a gradual improvement in foreign demand and the stabilization of current inventory declines. The labor market outlook remains positive. Although the unemployment rate may rise slightly, it will remain very low overall, and real wages, which returned to growth this year, are expected to continue rising over the next two years. Despite month-to-month volatility, inflation has returned close to the target this year, and a similar trend is anticipated in the coming years.

The CNB will continue its gradual rate cuts, facilitated by low inflation and weak economic growth that does not generate significant inflationary pressures. However, compared to this year, we expect a much slower pace of monetary easing, as the CNB is likely to be cautious, due to service price developments, wage growth, and ongoing fiscal expansion. Therefore, we anticipate rate stability for December and expect three 25-basis point cuts in 2025. We believe the koruna is currently close to its fundamentals, and we do not foresee significant movements in the near term. Over the next two years, we expect a slight strengthening of the koruna in our baseline. However, we see risks as highly asymmetric, skewed towards weaker side, primarily due to global and geopolitical factors.

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