The Czech Republic’s economy posted its strongest quarterly growth in nearly three years, expanding by 2.4% year-on-year in the first quarter of 2025, according to revised figures from the Czech Statistical Office (ČSÚ). This performance marks the fastest pace of expansion since mid-2022 and highlights growing consumer confidence and domestic demand.

On a quarter-on-quarter basis, GDP rose by 0.7%, slightly below the initial estimate of 0.8%. The increase was mainly fueled by a rebound in household consumption, ongoing government spending, and a rise in inventories, while net exports continued to weigh negatively on overall economic performance.

“Stronger real incomes and a slight dip in the savings rate have encouraged household spending, which remains central to the country’s economic recovery,” said a ČSÚ spokesperson.

Consumer Spending Leads the Recovery

Real household consumption jumped by 2.7% year-on-year, supported by a decline in the savings rate to 18.3% from 19.8%. Analysts interpret this as a sign of improving consumer sentiment.

Meanwhile, gross capital formation contributed positively to GDP, primarily through inventory accumulation. However, fixed investment weakened, with corporate investment falling by 0.8%, raising concerns about the sustainability of current growth levels.

Sectors such as industry, construction, IT, and financial services showed solid value-added growth, further supporting the economy's momentum.

External Trade Still a Drag

The trade balance continued to exert downward pressure on GDP, with net exports contributing negatively. Although exports saw modest short-term gains—potentially due to pre-emptive stockpiling amid global trade uncertainty—analysts caution that these gains may not be sustained if protectionist trends escalate, particularly in relation to U.S. trade policy.

Despite the export headwinds, the Czech Republic outperformed regional peers. Notably, Hungary's economy contracted in Q1, underscoring the Czech economy’s relative resilience in the Central and Eastern European (CEE) region.

Outlook: Cautious Optimism with Risks Ahead

Economists now forecast full-year GDP growth of around 2.0%, up from just 1.0% in 2024. Household demand is expected to remain the primary growth engine, although risks from global trade tensions and a potential slowdown in industrial demand could challenge the outlook in the second half of the year.

The Czech National Bank has flagged potential risks from rising protectionism, which could weaken export markets. However, inflation remains stable at 2.4%, in line with the central bank’s target, providing scope to maintain supportive monetary policy if needed.

As Q2 unfolds, policymakers and business leaders will closely monitor whether domestic demand can offset external pressures and keep the Czech economy on its upward trajectory.