September confidence indicators showed a slight deterioration in overall economic sentiment, but they do not represent a significant negative signal for the economic outlook. Sentiment in the services sector, in particular, is deteriorating, while the retail sector and consumers are sending more favorable signals. Moreover, improved expectations in the industrial sector suggest that the September decline in sentiment may be temporary. For the CNB, in addition to the slight weakening of confidence, slightly more favorable employment expectations and higher price expectations—particularly in the construction and services sectors—will also be important.

Since 2022, the relationship between oil prices and fuel prices has changed significantly. A model based on pre-war correlations would currently indicate that gasoline would be about eight crowns cheaper and diesel nearly 12 crowns cheaper. However, the data suggest that the bulk of the difference does not arise from average gas station margins, but rather in the European refining and wholesale markets. The analysis breaks down price markups along the supply chain, describes structural problems in the Czech and Central European diesel markets, and also examines the possibility of a fiscally neutral excise tax structure during oil price shocks. On the supply side, there is uncertainty regarding supplies, disruptions in ties to Russian oil, and limited capacity, while Czech and Central European demand for diesel remains strong. This combination is putting upward pressure on prices.

The September decision was unanimous, and the Bank Board did not consider it necessary, for the time being, to follow up on the June rate hike with a further tightening of monetary conditions. Furthermore, financial conditions are tightening due to rising longer-term market rates, which are also affecting lending. In November, the CNB will revisit the question of whether to keep the rate at 3.75% or raise it to 4%. The second option seems more likely to me, unless there is a significant cooling off in domestic data or a normalization of commodity prices. Meanwhile, the market expects an even more pronounced rate hike to 4.75% over a nine-month horizon. However, the Czech yield curve is also significantly influenced by foreign rates, partly due to domestic factors. The CNB’s leeway to not place greater weight on these developments will depend primarily on the future trajectory of core inflation and the koruna exchange rate, the importance of which was also emphasized by the governor.

Activity declined by 13 percent in terms of volume compared to July

According to my estimate, the overall year-on-year growth in realised residential property prices slowed from 14.0% to 12.3% in the second quarter. Prices of existing flats nevertheless continued to rise at a very strong pace, while prices of new flats in Prague fell by 1% quarter on quarter according to the Czech Statistical Office, leading to a marked slowdown in their annual growth rate. However, the surprising decline in Prague new-build prices is not broadly corroborated by transaction data from Flat Zone, and I would therefore not yet interpret it as the beginning of a more pronounced cooling of the housing market, although the gradual normalisation of the mortgage market should, with some lag, also be reflected in housing market developments. This should be transmitted through two channels – the CNB's macroprudential regulation and higher market interest rates.

Inflation in August accelerated slightly to 1.9% year-over-year, but a more significant problem remains beneath the surface: core inflation remains at 3%, and service prices have accelerated again on a month-over-month basis. Labor market data point to a mild pro-inflationary risk rather than a disinflationary one. The CNB may leave interest rates unchanged at 3.75% in September and wait impatiently for the November forecast.

July’s industrial and foreign trade figures pointed to a weaker start to the third quarter. The overall economic picture, however, remains mixed: weaker industrial output and exports contrast with more resilient construction, retail, and services. The data thus pose a certain risk to the expected modest recovery of the Czech economy in the third quarter, projected at 0.6% quarter-over-quarter. Moreover, the weakness in July’s industrial output was not across the board, and a solid trend in production outside the automotive sector and energy-intensive industries remains evident, as confirmed by export figures. Foreign trade remains under pressure from higher energy prices. Trends in residential construction remain favorable for both housing starts and completions, despite renewed weakness in building permits.

Consumer prices rose by 0.3% month-over-month in August, and year-over-year inflation accelerated to 1.9%. The higher rate of growth was driven mainly by fuel prices, while food prices had the opposite effect. According to preliminary estimates, core price pressures eased slightly. At the same time, July retail sales (excluding autos) returned to stronger figures, reflecting a sustained strong trend in retail and services. Inflation, adjusted for wage growth, brings some relief to the central bank, but momentum in retail sales and wages will likely keep the CNB in hawkish mode.

Wage growth accelerated to 6.4% year-over-year in the second quarter; however, following a significant revision of first-quarter data, the pace is much more moderate than the original figures suggested or the central bank had expected. Real wages, however, continue to grow briskly, and the persistently strong quarter-over-quarter growth in nominal wages—at 1.6%—maintains the risk of inflation. For the CNB, the wage data thus represent a less hawkish signal than before, but not a reason to change the current monetary policy stance, even in light of the planned stronger wage growth in the public sector.

Overall, strong economic performance of around 2% in the first six months of this year, the surprising resilience of the Czech manufacturing sector, and solid consumer demand are also reflected in lending activity. Everything is growing—from consumer loans to mortgages to loans to businesses. Meanwhile, in July, the share of non-performing loans remained at multi-year lows, and in the case of non-financial corporations, the record improved even further. The Czech banking system has thus found itself in the holy grail of banking: it is meeting dynamic demand for loans that remain very healthy. This holds true on an international scale as well, according to the EBA Risk Dashboard, which shows that as of the end of March of this year (the EBA has not yet published data for the second quarter), the Czech Republic ranked in the top third of the pan-European rankings in terms of loan portfolio quality.

Czech gross national income has improved in recent years, although probably less markedly than suggested by the aggregate data from the Czech Statistical Office. These show that the gap relative to GDP narrowed by 4.2 percentage points, with GNI reaching 97.4% of GDP in 2025, compared with an average of 93.2% in 2006–2015. However, once the specific role of reinvested earnings is taken into account, or when balance-of-payments data from the Czech National Bank are used, the improvement comes to only around 1 to 2.5 percentage points. At the same time, the FDI story is entering a new phase: dividend outflows have moderated in recent years, while reinvested earnings on foreign capital remain high. The role of Czech capital abroad, and the income it generates, is also increasing. This adds a new dimension to the debate about dividend outflows, which by its very nature cannot be separated from the export performance of the Czech economy.

The Czech economy accelerated to 0.4% quarter-over-quarter in the second quarter, but its recovery remains less convincing than monthly data had suggested. It therefore poses only a marginal risk to our outlook for a moderate economic recovery, with GDP growth projected at 2.3% year-on-year in 2027 after 2.0% in 2026 (1.9% in the second quarter). Household consumption is lagging behind real wage growth, and business investment in production capacity is weakening. Construction investment and exports, on the other hand, remain a source of support. Furthermore, weak productivity, combined with rapid wage growth, is keeping inflationary pressures high. Labor productivity thus remains a significant weakness of the Czech economy—both for growth and for inflation.

According to Flat Zone statistics, the price of apartments sold in the Czech Republic approached 100,000 crowns per square meter in the second quarter, while in Prague it exceeded 165,000. However, price growth remains stronger than the aggregate figures suggest, as these are dampened by a shift in transactions toward less expensive apartments and regions. Combined with more moderate growth in asking prices and higher market interest rates, this may contribute to a slowdown in the growth rate of actual prices over the course of a year. However, a more significant decline in price momentum will continue to be held back by supply-side constraints and stronger mortgage frontloading.

Economic sentiment in August deteriorated slightly and fell just below this year’s average. However, it still points more toward a gradual recovery of the Czech economy than a significant slowdown. Consumer and business confidence, in particular, took a turn for the worse, with expectations for future economic developments deteriorating. By contrast, industrial confidence improved slightly, and employment expectations have been rising for the second month in a row. From the CNB’s perspective, the combination of improved labor market expectations and heightened price expectations—particularly in the services sector—remains significant and will continue to warrant a hawkish stance.

The Czech Banking Association’s forecasting panel expects the Czech economy to grow by 2% this year. Growth is projected to accelerate to 2.3% in 2027. These expectations are in line with the May forecast, but the structure has changed: the outlook for household consumption, investment, and exports is more favorable, supported by stronger wages, lending activity, and more resilient foreign demand.

The Czech economy will grow by 2% this year and accelerate to 2.3% next year. This is the forecast in the latest outlook from the Czech Banking Association’s Forecast Panel. Overall growth remains virtually unchanged from the May forecast, but its structure has shifted: the outlook for household consumption, investment, and exports is more favorable, supported by stronger wages, lending activity, and more resilient foreign demand.