Trade tensions and German slump drag down Czechia’s economic outlook

The European Bank for Reconstruction and Development (EBRD) has downgraded its forecast for the Czech economy, citing weaker conditions in Germany and the impact of global trade tensions.

In its latest economic outlook released Tuesday, the EBRD now expects the Czech gross domestic product (GDP) to grow by 1.6 percent in 2025, down from the 1.9 percent growth projected in February. The bank also revised its 2026 forecast, predicting growth of 2.2 percent, a slight decrease from the previously expected 2.4 percent.

The Czech economy grew by 1.1 percent in 2024 after shrinking by 0.1 percent the previous year. Last year’s recovery was driven by consumer spending and exports, while falling investment and inventory reductions weighed on growth. The EBRD had forecast 2.5 percent growth for 2025 as recently as spring 2024.

The bank noted that the Czech Republic’s heavy economic dependence on Germany, its largest trading partner, remains a major vulnerability. Around 60 percent of Czech exports are tied to the automotive, electronics, and metal sectors, which are closely linked to German industry.

“The economic impact of escalating trade disputes on the Czech economy is largely indirect via Germany,” the EBRD said. “Direct exports to the United States account for just around 2 percent of GDP.”

According to the report, new U.S. tariffs on EU imports introduced in mid-April could reduce Czech GDP growth by 0.3 percentage points this year. However, the bank said increased fiscal and military spending in Germany and across the EU could boost Czech growth in 2026 if trade tensions ease.

Across all EBRD regions, average growth is projected at 3 percent for 2025, down from 3.2 percent in February. The 2026 forecast remains unchanged at 3.4 percent.

Within Central Europe and the Baltic states, the region is expected to grow by 2.4 percent this year, with Poland leading at 3.3 percent. Estonia is forecast to grow the slowest at 1.3 percent.

The EBRD was founded in 1991 to support post-communist countries in their transition to market economies. In 2021, after a 13-year pause, the bank resumed investing in the Czech Republic.