ECONOMICS

Czechia Economic Indicators

Czechia’s economic indicators: a comprehensive insight

The Czech Republic, situated at the heart of Europe, boasts a dynamic economy with notable strengths in manufacturing, technology, and education. Despite recent challenges given by the pandemic and the war in Ukraine, the country’s economic fundamentals remain strong, bolstered by a commitment to innovation and development.

Economic performance: GDP and growth dynamics

According to the latest macroeconomic forecast for Czechia of the European Commission, Economy and Finance, the country’s economy is expected to return to growth in 2024, with a projected real GDP increase of 1.0%. Growth is anticipated to gain momentum in the following years, reaching 2.4% in 2025 and 2.7% in 2026. 

Declining inflation, coupled with improvements in real wages, is set to boost household consumption, reclaiming its role as the main driver of economic activity. However, growth may remain moderate as consumers maintain a cautious approach. Inflation rates are predicted to decline steadily, with projections of 2.7% in 2024, 2.4% in 2025, and 2.0% in 2026, primarily influenced by the service sector. Additionally, the gradual withdrawal of energy price support measures and the government’s fiscal consolidation strategy are expected to reduce the budget deficit to 2.5% in 2024, 2.3% in 2025, and 1.9% in 2026.

Source: Economic forecast for Czechia, European Commission Economy and Finance, November 2024

Insights on Czechia’s labour market

Czechia’s economic activity is anticipated to continue its recovery, supported by one of the lowest unemployment rates in the EU. Unemployment is projected to remain remarkably low, at 2.6% in 2024-Q2, with a marginal increase to 2.7% by 2026, underscoring the resilience of the labour market even as pressures ease. Wage growth is forecasted to remain robust, with increases of 6.2% in 2024 and 6.5% in 2025, before moderating to 5.6% in 2026, as highlighted in the European Commission’s Economic Forecast for Czechia. This trajectory reflects a stable and competitive labour market environment.

Inflation trends and outlook in Czechia

After two years of double-digit inflation, Czechia’s headline inflation is projected to decelerate to 2.7% in 2024, further easing to 2.4% in 2025 and 2.0% in 2026. Energy prices are expected to contribute negatively to inflation by 2025, supported by declining wholesale prices and stable network tariffs. Although food prices temporarily accelerated in recent months—despite a VAT reduction in early 2024—services are anticipated to drive inflation, with growth rates of 4.8% in 2025 and 3.6% in 2026, primarily influenced by wage increases. Core inflation, excluding energy, food, alcohol, and tobacco, is forecast to remain above the headline rate at 4.2% in 2024 and 3.0% in 2025. While companies’ relatively high profit margins are expected to absorb part of the wage growth, inflationary risks persist on the upside.

Foreign direct investment: a magnet for global capital

Czechia continues to attract substantial Foreign Direct Investment (FDI), underscoring its strategic location, skilled workforce, and investment-friendly environment. The country offers a favorable environment for attracting high-value foreign direct investments, particularly in sectors such as semiconductors, creative industries, healthtech, mobility, AI, digital technologies, advanced manufacturing, ecotech, and space, aviation, and defense. These investments are considered strategically important for the country’s growth.

In 2023, CzechInvest facilitated ten new investment projects in the Czech Republic. These investments are expected to create over 4,000 new jobs and inject more than EUR 740 million into the economy. The primary sectors involved were electronics, electrical engineering, biotech, and medical devices. Notably, over two-thirds of these investments focused on expanding existing operations, particularly in high-tech manufacturing, and most of the projects received investment incentives, a significant shift from previous years (Czech Business Guide.com).

The role education in Czechia

In December 2023, the Czech Government approved the ‘Long-term plan for education’ for 2023-2027, which outlines the direction and priorities for the country’s education system. This plan aligns with the Strategy for Education 2030+ and sets clear objectives for education at both the national and regional levels, with a focus on fostering personal development, advancing modern education, and ensuring accountability for learning outcomes.

For vocational education and training (VET), the plan focuses on optimising the structure to better meet labour market needs, technological advancements, and social dynamics. It includes enhancing general education components, strengthening key competencies, and improving practical training through dual education models. The plan also highlights the importance of continuous professional development for vocational teachers and exploring new approaches to graduation exams.

Additionally, the plan encourages collaboration between schools and employers, promotes digitalisation in admissions and graduation processes, and considers introducing short-cycle training programmes. Regional involvement is crucial, as each region will implement its own long-term education plan, ensuring alignment with national objectives while addressing local needs.

Learn more about Czechia’s economy

Czech Statistical Office (CZSO).