Confidence in the Czech economy weakened in May, with sentiment declining among both businesses and consumers amid concerns over geopolitical tensions, inflationary pressures and slowing economic momentum, according to data published by the Czech Statistical Office (ČSÚ).

The overall economic confidence indicator fell by 1.6 points month-on-month to 99.7 points. Business confidence declined by 1.4 points to 99 points, while consumer confidence dropped more sharply, falling by 2.6 points to 103.4 points.

Compared with May 2025, overall confidence was 1.3 points lower. Business sentiment declined by 2.1 points year-on-year, although consumer confidence remained 2.8 points above last year’s level.

Among businesses, confidence weakened across all major sectors except construction. The largest declines were recorded in industry and trade. Industrial confidence fell by 2.6 points to 94.5, while trade sentiment declined by 2.2 points to 92.8. Confidence in selected services edged down by 0.5 points to 102.4. Construction was the only sector to record an improvement, rising by 2.4 points to 117.9.

Jiří Obst, Head of the Short-Term Surveys Department at the Czech Statistical Office, said the deterioration in business sentiment was mainly linked to weaker expectations regarding production growth in industry and a worsening assessment of the overall economic situation in retail trade.

Consumer confidence declined for the second consecutive month and reached its lowest level since August 2025. According to Anastasija Neradová from the ČSÚ’s Department of Conjunctural Surveys, households remain concerned about the overall economic outlook while also assessing their own financial situation more negatively.

The proportion of consumers expecting a deterioration in the Czech economy over the next 12 months remained elevated following an increase in April. More households also reported that their current financial situation was worse than a year ago. At the same time, fewer respondents expected their financial position to improve over the coming year, while the share of households planning to limit major purchases increased.

Analysts attributed the weakening confidence primarily to the continuing conflict in the Middle East and its impact on energy prices and inflation expectations.

Vít Hradil, chief economist at Investika, said the ongoing regional conflict has contributed significantly to deteriorating economic sentiment, particularly through rising fuel prices and concerns over potential disruptions to global energy supplies, including possible restrictions in the Strait of Hormuz.

Petr Kymlička from Moore Czech Republic noted that the corporate sector, especially energy-intensive industries, remains more vulnerable to rising costs than households. According to his estimates, the cost shock for companies is currently approximately two to three times stronger than for consumers.

Despite the weaker sentiment, some analysts believe companies still expect the geopolitical situation to stabilise. Petr Dufek, chief economist at Creditas Banka, said many firms appear to anticipate that the conflict will eventually ease, although they also expect higher operating costs and continued pressure on employment.

Consumer caution is also becoming more visible in spending expectations. Petr Javůrek, chief financial analyst at Provident Financial, said households are increasingly concerned that geopolitical tensions could slow economic growth and contribute to higher inflation, making consumers more cautious about their financial outlook.

Jaromír Šindel, chief economist of the Czech Banking Association, warned that reduced willingness to make large purchases could weigh on retail performance and pose a downside risk to the Czech Republic’s projected economic growth of around 2 percent this year.

Some experts also pointed to domestic structural issues affecting business sentiment. Vlastimil Sojka, a tax adviser at KODAP, criticised the introduction of the unified monthly employer reporting system, arguing that companies increasingly view it as an additional administrative burden rather than a simplification.

Labour shortages also remain a challenge for businesses. Jaroslav Zeman from law firm Spring Walk said many sectors are increasingly dependent on foreign workers to maintain operations, while current immigration and administrative procedures continue to lag behind labour market needs.

Source: CTK