The Czech economy is facing mounting challenges as both business and consumer confidence dropped in April, according to ING's latest economic analysis. With industrial sentiment weakening sharply, stagnant investment, and ongoing inflationary pressure, the outlook remains uncertain, despite resilience in construction and continued household spending.
'The consumer confidence indicator dropped by 1.1 points to 97.7 in April, while business confidence shed 3.1 points to 96.5 – the weakest level since last October.'
Overall confidence in the Czech economy deteriorated significantly, with the aggregate indicator falling by 2.8 points to 96.7, well below the long-term average of 100. The decline was led by a 4.5-point drop in industrial confidence, as almost 44% of industrial entrepreneurs cited insufficient demand as a key barrier to growth. Confidence also fell in the trade and services sectors, while the construction sector bucked the trend, rising 0.6 points to 116.4 – buoyed by high demand for mortgages and rising property prices.
'Industrial entrepreneurs are still struggling predominantly with insufficient demand, which was cited as a barrier to production growth by almost 44% of respondents in April.'
Czech households are increasingly cautious about the future, with more people expecting the economic and personal financial situation to worsen over the next year. Despite these concerns, consumer activity has remained resilient, with fewer respondents planning to postpone large purchases. Property prices are surging, with flat offer prices rising 15.6% year-on-year in Q1 2025 and quarterly growth accelerating to 6.3%. This is expected to push up core inflation via imputed rents, which represent 10.3% of the consumer price basket.
'The number of respondents not planning large purchases dropped for a second consecutive month.'
This complex environment presents a significant policy challenge for the Czech National Bank (CNB). While core inflation remains potent, growth prospects are hindered by weak investment appetite and global uncertainty. ING believes there is space for further monetary easing.
'We see some space for further rate reductions to help the Czech economy return to its potential… it is essential to cultivate an environment that fosters an appetite for investment and not an appetite for destruction.'
Looking ahead, ING forecasts a slowdown in headline inflation in April, largely due to base effects in food prices, but expects core inflation to pick up. A 25bp rate cut is seen as a step in the right direction, though any further easing will depend on April's inflation data and the CNB's new macroeconomic forecast, which is being prepared under revised internal structures.
'We are curious about how the Spring forecast will perform in terms of consistency and storytelling.'
Despite headwinds, opportunities remain. The ongoing reshuffle in global trade is prompting Czech firms to eye investments in German companies, capitalising on perceived weaknesses in Europe's largest economy.
'Every reshuffle creates opportunities… the current situation is perceived as an opportunity to acquire shares in German firms while the economy faces severe structural issues.'
While construction shows promise and consumers continue to spend, the broader economy's future depends on reviving industrial momentum and fostering confidence in investment-led growth. 'Hope for the best, but prepare for the worst.'
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