GDP growth decelerates in Q1

GDP off to a soft 2026 start: The Czech Republic’s economy got off to a weak start in the first quarter of 2026: According to a preliminary estimate, GDP grew 0.2% on a calendar- and seasonally adjusted quarter-on-quarter basis in the first quarter, following a downwardly revised 0.6% expansion in the prior quarter. Q1’s reading was the joint-softest since Q3 2023 and missed market expectations of a softer deceleration. On a calendar- and seasonally adjusted basis, GDP rose by 2.1% year on year in Q1 from a downwardly revised 2.6% in the prior quarter and was the weakest increase since Q4 2024.

Investment underpins qoq growth: While the preliminary release did not contain a complete breakdown, the statistical office reported that, on the expenditure side, quarterly GDP growth largely stemmed from increasing gross investment. Conversely, the external trade balance reportedly had a negative impact on overall GDP. Meanwhile, on the production side, the services sector made a positive contribution to economic growth, while the industrial sector had a negative impact on GDP. Lastly, employment was unchanged quarter on quarter. In annual terms, GDP growth took a hit from the external sector, which outweighed the contribution of domestic demand, particularly fixed investment and household consumption—the latter likely supported by a 0.7% increase in employment. A complete national accounts report will be made available on 29 May.

GDP growth expected to accelerate, but downside risks mount: Our Consensus is for sequential GDP growth to be accelerating in the second quarter from Q1’s weak reading. That said, downside risks to that projection have mounted since the war in the Middle East broke out in late February. Looking further ahead, our Consensus is for sequential GDP growth to broadly stabilize at Q2’s level in Q3–Q4 2026.

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