Tuesday, 15 September 2026
The Czech economy continued to strengthen during the first half of 2026, with household spending, business investment and industrial production contributing to growth. Inflation eased considerably by the end of June and unemployment remained low, creating a more supportive domestic environment despite continuing uncertainty across European manufacturing markets. Economic output increased by 0.4% during the second quarter compared with the previous three months and was 1.9% higher than in Q2 2025.
Household consumption increased by 0.5% quarter-on-quarter during Q2 and was 2.7% above its level a year earlier. Lower inflation and improving real incomes have gradually restored some of the purchasing power lost during the earlier period of rapidly rising prices. Retail activity reflected this improvement, with inflation-adjusted sales increasing by 3.6% year-on-year in June. Non-food sales were 5.4% higher, food sales increased by 2.1% and automotive-fuel sales grew by 0.3%. Online retailers recorded particularly strong growth, with sales 12.6% above their level in June 2025.
Investment was another important component of the first-half recovery. Fixed investment increased by 1.5% between the first and second quarters and was 7.1% higher than a year earlier. Spending on housing, other buildings and infrastructure, and transport equipment contributed to the annual increase.
Industrial activity also improved towards the end of the first half. Production increased by 4.0% year-on-year in June and by 1.2% compared with May. New orders were 13.1% above their level a year earlier. Demand from international customers was particularly strong, with foreign industrial orders increasing by 19.5% year-on-year compared with growth of 2.2% for domestic orders. Transport equipment, electronics and electrical equipment were among the areas benefiting from stronger demand. The improvement in industrial output has not yet translated into employment growth across the sector, however, with the average number of people employed in industry 1.1% lower than a year earlier.
Construction recorded positive annual growth at the end of the first half, although performance varied considerably between different parts of the sector. Overall construction output increased by 2.0% year-on-year in June. Building construction expanded by 6.3%, while civil engineering activity declined by 5.3%. Residential development produced similarly mixed results. Construction began on 4,013 dwellings during June, an increase of 52.9% compared with a relatively weak June 2025, while the number of completed dwellings declined by 17.8% to 2,699.
Inflation provided one of the more encouraging developments for the domestic economy. Annual consumer-price growth slowed from 2.1% in May to 1.5% in June, taking headline inflation below the Czech National Bank’s 2% target at the end of the first half. Food and non-alcoholic beverage prices were 3.4% lower than a year earlier, while the annual increase in fuel prices slowed substantially. Fuel remained considerably more expensive than in June 2025, but its year-on-year increase eased to 14.9% from 26.3% in May.
The labour market remained tight by European standards. The employment rate among people aged between 15 and 64 stood at 75.5% in June, compared with 75.7% a year earlier. The internationally comparable unemployment rate increased moderately from 3.0% to 3.3% over the same period. Low unemployment, easing inflation and improving household expenditure have strengthened the domestic side of the Czech economy following the period when high inflation placed considerable pressure on real incomes.
Foreign demand nevertheless remains critical because of the Czech Republic’s large manufacturing and export industries. Exports of goods and services increased by 3.3% year-on-year in real terms during Q2, while imports grew by 3.7%. The trade balance for goods and services reached approximately CZK 99 billion during the quarter. The Czech economy therefore continues to benefit from international demand while remaining exposed to developments in Germany and other major European industrial markets.
Public finances remain relatively moderate compared with many more heavily indebted European economies. European Commission projections put the Czech general government deficit at approximately 2.8% of GDP during 2026, with public debt expected to reach around 45.8% of GDP. The Czech National Bank’s August outlook expects the economy to grow by approximately 2.2% across 2026 before accelerating to 2.7% in 2027, with average inflation forecast at around 2.0% this year. An earlier European Commission forecast was somewhat more cautious, projecting GDP growth of 1.8% during 2026.
For the Czech commercial property market, the economic backdrop has become more supportive than during the earlier period of stagnation and high inflation. Stronger household spending is favourable for consumer-facing businesses, while improving industrial production and foreign orders provide a better environment for manufacturing and logistics activity. Rising investment and stronger building construction also point to greater activity across parts of the development market.
The recovery nevertheless remains exposed to external risks. Industrial employment is still declining, civil engineering weakened at the end of H1 and the country’s export-oriented manufacturing base remains closely connected to economic conditions elsewhere in Europe. The Czech Republic entered the second half of 2026 with growth supported by a broader range of domestic factors, but maintaining this momentum will depend increasingly on whether domestic demand can continue expanding while exporters navigate uncertain European and global trading conditions.
Source: CIJ.World Research & Analysis Team
