Country Risk Report

Czech Republic

Last update – February 2026

Country rating

LOW RISK FOR ENTERPRISE

Economic risk

Business environment risk

Political risk

Commercial risk

Financing risk

Swipe to view more

Form of state	Parliamentary Democracy
Head of state	Petr Fiala (PM)
Next elections	2028, presidential

Strengths & weaknesses

EU membership and strong international integration
Stable public finances with moderate debt levels
Well-developed domestic financial system
Robust business environment and strong institutional framework

High export and import dependencies
Labor market tightness and demographic pressures
New coalition composition may complicate policymaking and reforms
Uncertainty around policy continuity and medium-term fiscal sustainability after elections

Economic overview

Cyclical risks

Economic growth is strengthening after a prolonged period of weakness, supported by a gradual recovery in domestic demand and improving external conditions. After subdued performance in previous years, activity has started to pick up as household consumption rebounds on the back of strong real wage growth and easing inflation. Services remain the main driver of growth, while construction activity has recovered, supported by public investment and EU-funded projects. Industrial activity has been more volatile, reflecting weak external demand earlier in the cycle, but leading indicators suggest that the downturn has been largely temporary and that manufacturing should gradually recover as foreign demand improves.

Looking ahead, growth is expected to remain solid but moderate. Household consumption should continue to underpin activity, supported by still-elevated real income growth, although high household savings imply a gradual rather than rapid transmission to spending. Investment is projected to recover progressively, with public investment remaining supportive and private investment gaining traction as external demand strengthens. On the external side, export growth should improve, although strong domestic demand will keep imports elevated, limiting the contribution of net exports in the near term. Overall, real GDP is forecast to grow by +2.8% in 2026, before easing to +2.3% in 2027.

Inflation risks are easing but remain relevant for the cyclical outlook. Inflation slowed markedly during 2025 and ended the year close to, but slightly above, the central bank’s 2% target. Disinflation has been supported by lower food and fuel prices and subdued administered price growth, while tighter monetary conditions have helped moderate demand pressures. However, underlying inflation remains more persistent, reflecting elevated services price growth and strong wage dynamics in a still-tight labour market. We expect headline inflation to average 2.5% in 2026 and 2.2% in 2027, gradually converging toward target as cost pressures ease.

Financing risks

The Czech fiscal position remains broadly stable, although underlying imbalances persist. The general government deficit is expected to remain close to 2% of GDP in the near term, reflecting a structural gap in public finances despite solid economic growth. Public debt is projected to rise gradually but remain contained, staying below 47% of GDP over the next few years and well below European peers. While this provides some fiscal space, buffers would remain limited in the event of a major adverse shock.

Market perceptions of Czech sovereign risk remain favorable. Sovereign credit ratings have been maintained at high investment-grade levels with a stable outlook, and government bond markets continue to function smoothly. Financing conditions remain stable, supported by strong domestic demand for government securities and a well-developed local-currency bond market.

However, rising government borrowing has increased the exposure of the domestic banking sector to sovereign debt, strengthening the link between public finances and financial stability. While this does not pose an immediate risk, it could amplify the transmission of fiscal shocks to the financial system under adverse scenarios.

Corporate insolvencies picked up in 2025 (+12% y/y) but are expected to stabilise and edge lower in 2026 at -2% y/y. Overall, financing risks remain moderate but tilted to the downside amid elevated external uncertainty and a gradually rising debt trajectory.

Structural business environment risks

The Czech business environment remains well above average by international standards. According to the 2025 Index of Economic Freedom, Czechia ranks 20th out of more than 180 economies, reflecting strong performance in property rights, judicial effectiveness, tax burden, trade freedom, investment freedom and financial freedom. International governance indicators suggest that the regulatory and legal frameworks are generally business-friendly, although perceived levels of corruption remain a relative weakness compared with some peers.

Over the medium term, structural risks stem mainly from labor market tightness, demographic pressures and relatively slow productivity growth in parts of the manufacturing sector. The gradual pace of technological adoption and limited efficiency gains in some industrial segments could weigh on competitiveness. In addition, the still insufficient diversification of the energy mix increases exposure to external energy shocks. These structural factors may persistently reduce potential growth and raise the vulnerability of the real economy if not addressed.

Political risks

Political risks have increased moderately following the most recent election cycle, which resulted in a change in government. The new coalition led by ANO, together with SPD and the Motorists, marks a shift toward a more fragmented and pragmatic political configuration. While democratic institutions remain strong and political stability is not in question, the heterogeneity of the coalition could complicate policy coordination and slow decision-making, particularly on structurally sensitive reforms.

The return of Andrej Babiš as Prime Minister signals a change in policy tone compared with the previous government, with greater emphasis on social measures, targeted tax relief and support for households and specific voter groups. This raises uncertainty around reform continuity, notably in areas such as pensions, taxation and medium-term fiscal sustainability. At the same time, the government has reiterated its intention to preserve overall macroeconomic stability and avoid abrupt policy shifts, suggesting a preference for gradual adjustments rather than a sharp fiscal loosening.

Hall of Minds

Earnings Release 4Q and 12M 2025

Allianz Careers

Sustainability at Allianz: On a joint path

Powering ahead: Global Wealth Report 2025