Czech Industry on the Cusp of Recovery: PMI Reaches 50 Points
The Czech manufacturing PMI rose to the 50-point mark in February 2026, signaling stabilization after a long period of contraction. While business confidence soared to a four-year high, the Babiš government is preparing to cut corporate income tax and revive the construction sector.
Stabilization After a Year of Contraction
The Czech manufacturing industry reached a turning point in February 2026. The Purchasing Managers' Index (PMI) compiled by S&P Global rose to 50.0 points from 49.8 in January — exactly on the threshold separating expansion from contraction. Although this technically represents stabilization rather than outright expansion, the value is the best in over a year and confirms a gradual shift in sentiment in the manufacturing sector.
A key driver of February's result was the growth in production volume, which accelerated to its highest pace in four years. Manufacturers increased production for the third month in a row, processing existing order backlogs. Business confidence jumped to a four-year high, suggesting that firms are optimistic about the medium-term outlook.
Shadows: Orders and Employment Under Pressure
Despite the positive trends, the data reveal persistent weaknesses. New orders fell slightly in February for the second consecutive month — manufacturers face subdued demand and strong international competition. Export orders also weakened, with firms citing weaker demand from Western European markets, especially Germany. Employment in the sector remains under pressure, with firms not yet increasing headcount.
At the same time, manufacturing prices are rising at their fastest pace in three years — pressure on margins has prompted some firms to raise prices on their own products, which could weaken competitiveness in the coming months.
Czechia Stands Out in the Region: Poland and Romania in Contraction
In a regional context, the Czech Republic stands out favorably from its neighbors. According to an analysis by FXStreet, the PMI rose in both Czechia and Hungary in February, while Poland and Romania showed a decline into contraction territory. Czechia, together with Hungary, is thus one of the relatively more resilient economies of Central and Eastern Europe in the current difficult global environment.
Babiš Government Bets on Tax Relief
On the fiscal front, the Babiš coalition of ANO, SPD and Motorists has announced steps that could support economic recovery. The government plans to reduce corporate income tax from 21% back to 19% — the level in effect before the previous government's consolidation package. The aim is to increase the attractiveness of Czechia for investment and promote job creation, as stated in the coalition's policy statement.
Changes will also affect housing: from 2026, taxpayers will be able to deduct mortgage interest from their tax base even when the loan is drawn through a housing cooperative. Business associations welcome the plans, but also point out that tax cuts alone are not enough — reducing administrative burden and speeding up permitting procedures will be key.
Global Risks Overshadow Cautious Optimism
The overall outlook is complicated by global trade uncertainty. US tariffs on European goods will affect the Czech economy primarily indirectly — through automotive supply chains, which are strongly linked to German manufacturers. According to the European Commission, an escalation of trade wars could reduce Czech economic growth by approximately 0.8 percentage points over a two-year horizon.
Nevertheless, the Ministry of Finance forecasts GDP growth of around 2.2% for 2026, driven by domestic consumption and a recovery in investment. The PMI data from February suggest that while industry is not yet in full turnaround, the worst is probably over.
