Although the year 2025 is already upon us, today brought a look back at the end of 2024. Statisticians today published a preliminary estimate of how the Czech economy fared in the fourth quarter of last year. The main message is that GDP grew by 0.5 % q-o-q in the last quarter of last year. Year-on-year, GDP grew by 1.6 % in Q4. This is exactly the result that the market was counting on. The growth of the Czech economy is therefore accelerating. Unfortunately, the pace of this acceleration is very sluggish. In the third quarter of last year, the economy grew by 1.4 % year-on-year, while in the second quarter it added 0.6 %.
Drivers of GDP growth
So far, statisticians have not provided specific figures on what major parts of the economy have been driving GDP growth. Even so, it was clear that household final consumption expenditure had contributed to growth. After all, households increased their spending year-on-year throughout 2024. The evidence was that retail sales rose steadily month-on-month.
And what was the development of the Czech economy in terms of individual sectors? Growth in value added was mainly supported by the trade, transport, accommodation and hospitality sector. Other service sectors also prospered. It is precisely in these sectors that the Czechs are simply saving a little less than a year ago. On the other hand, industry added another negative result. But this is not news to us. In fact, unlike retail trade, the monthly statistics there have recently reported declines.
Full year 2024 + outlook for 2025
When the whole of 2024 is added up, it turns out exactly as we expected in our last forecast. Gross Domestic Product (GDP) grew by a flat 1 % last year.
The economy will continue to be supported this year by the end of belt-tightening by Czech households. We will also continue to see real wage growth. On the other hand, inflationary pressures tend to intensify. In addition, if Donald Trump also leans on Europe with high tariffs and Europe takes countermeasures, this will create the breeding ground for a further increase in inflationary pressures. Hence, the support for GDP growth may not be as strong this year as last year.
The industry will continue to struggle. If the German mothers of the Czech companies reduce their workforce and cut production, eventually the Czech plants will also be affected. And let us not forget that green requirements will continue to tighten. This will make the problems of European industry even more acute. And US tariffs could be the icing on the cake. If they are harsh, they will ground the industry even harder.
This year, the Czech economy is expected to grow by around 2 %. The current ruling parties would certainly like the economy to grow faster in an election year. On the other hand, it will still be a better result than what the Czech economy has delivered in the last two years.
Expected market reaction
Although the GDP result did not surprise today, the koruna weakened slightly to CZK 25.13/EUR. The losses in the koruna could also be translated as the Czech economy's growth not being strong enough to prevent the Czech National Bank's plan to cut interest rates. This should come as early as next week. We are therefore also betting that the resumption of the CNB's interest rate cut process will eventually force the koruna to weaken slightly.
31 January 2025
Jiří Cihlář
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