Czech economy on track for solid growth and contained inflation
Per the full note source, the Czech economy is demonstrating strong growth dynamics fueled by robust industrial output and rising new orders, projecting a favorable outlook for the near term. Recent data shows a 2.0% year-on-year increase in real industrial production, underlining the resilience of the manufacturing sector, particularly in electronics and optical instruments. This growth momentum positions the Czech koruna favorably, especially as domestic demand appears stable amidst manageable inflation levels. With no high-impact events on the calendar, focus remains on the continuing macroeconomic indicators out of the Czech Republic.
What the desk is arguing
The Czech economy is on a trajectory of solid growth coupled with contained inflation, creating a favorable economic backdrop. As noted in the recent report, industrial output continued to rise year-on-year in May, signaling resilience and robustness within the manufacturing sector.
Specifically, new orders have grown by 4.0% year-on-year, supported by robust contributions from sectors such as computers and electronics. This growth, alongside a 4.4% rise in construction output, suggests a multi-faceted expansion within the economy, though a cooling housing market poses some uncertainty.
Where it sits in our coverage
Our consensus target for the EUR/CZK stands at 1.075, with a range from 1.04 to 1.12. Leading firms like jpmorgan project targets around 1.10 for March 2026, indicating a bullish outlook on the koruna, while bofa takes a more cautious stance at 1.04.
This desk's interpretation aligns closely with the upper part of the established range, reinforced by the positive industrial and construction momentum highlighted in the current report.
How other firms see it
Overall, firms like jpmorgan and goldmansachs are aligned with our bullish take on the koruna, citing similar growth indicators. In contrast, bofa presents a more cautious view that could influence short-term trading strategies.
Monitoring the trajectory of the EUR/CZK will be critical, particularly in light of the supportive industrial data and ongoing shifts in construction activity that underscore broader economic stability.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Czech real industrial production rose 2.0% YoY in May, signaling robust economic activity.
- 02New orders increased by 4.0% YoY, supported primarily by strong performance in electronics.
- 03Construction output continues to expand, growing 4.4% YoY, which will further bolster GDP growth.
- 04The outlook remains positive, despite uncertainties in the housing market.
Market implications
With a strong economic foundation, the Czech koruna may see appreciation pressure against the euro, particularly if upcoming data remains supportive. Watch the EUR/CZK pair for potential movements towards our target of 1.075.
Risks to this view
A significant slowdown in industrial production or unexpected increases in inflation could undermine the current growth narrative. Additionally, external shocks or geopolitical developments may also present challenges, reversing bullish sentiment on the koruna.
Newer quick take Older quick take Quick take Published 09:50 Czech Republic Czech economy on track for solid growth and contained inflation Industrial output continued to expand year-on-year in May when adjusted for the number of working days, and strong new orders point to a favourable outlook. Construction activity is also expected to support growth. Solid growth alongside contained inflation remains a realistic scenario.
Still, the expected calming in the housing market is not certain Czech construction output grew for a nineteenth consecutive month in May Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download David Havrlant Chief Economist, Czech Republic Industry and construction to support expansion Czech real industrial production gained 2.0% from a year ago in WDSA terms in May, while it was down by 0.4% from the previous month. Annual industrial production increased in most sectors, with the strongest gains in the production of computers, electronics and optical instruments. Annual output declined in the segment of 'other transport equipment and machinery', partially reflecting the high comparison base from last year.
The value of new orders at current prices rose 4.0% YoY in May, but fell 1.2% from the previous month. Compared to a year ago, new orders from abroad gained 5.2%, and domestic new orders increased by 1.7% in May. The new orders were mostly driven by computers, electronic and optical instruments, along with the chemical industry and metallurgy.
Manufacturing is resilient Source: CZSO, Macrobond "> Source: CZSO, Macrobond The average number of employees in industry dropped by 1.1% YoY, while monthly nominal wages eased to 3.7% YoY in May from the 5.8% YoY recorded previously. Construction output rose 4.4% YoY in May and 0.2% from the previous month. Compared to a year ago, 48.3% more apartments were started and 13.5% more were completed.
Construction output grew for a nineteenth consecutive month with growth recorded in both civil engineering and building construction. The average number of employees in construction increased by 2.3% YoY, and the monthly nominal wage growth increased to 3.9% YoY in May from 2% YoY previously. New orders suggest sustainable gains in industry Source: CZSO, Macrobond "> Source: CZSO, Macrobond Decent growth performance amid a non-accelerating price level Czech manufacturing and construction are set to propel economic expansion over the coming quarters.
Solid new orders are good news for the Czech industrial base, although the persistently weak appetite for hiring is a headwind. This could change, however, if industry enters a more robust expansion phase, which we believe is possible, provided the external environment does not deteriorate significantly. Demand for residential property is also likely to remain strong, with households expected to channel at least part of their ample savings into property purchases.
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