Research (Conseq)
Macroeconomics  |  February 07, 2013 14:01:46

Outlook for the Czech economy this year

The Ministry of Finance last update align its estimate of the November CNB forecast, starting this year with economic stagnation (or cosmetic growth of 0.2%) and consumer inflation targeting levels just above 2%. The reason, among others weak macroeconomic data in recent months, led by low domestic demand and business activity. Weak household demand illustrates the continuing decline in retail sales at the end of last year, the current difficult situation in the industry then decreasing volume production. The inflation rate should decline compared to last year due to lower-level rises of food and energy, as well as more moderate increases in administered prices (gas, rent, health care). Against importantly will cause a increase in VAT rates by 1 percentage point.

I believe that actual developments will be this year a little better. Although the beginning of the year that is likely to take place in the spirit of the previous stagnation, and other quarters especially from the second half of the year should lead to recovery of activity in the industry and a gradual increase in domestic demand. Fare should first be especially export-oriented sectors thanks again intense trade with EU countries led by Germany, but also with countries outside Europe. The increasing volume of orders and the improving prospects later lead to higher investment activity of companies. Gradually increasing consumer confidence is then reflected in higher household consumption.In addition, record low interest rates push down mortgage rates. Increase in the volume of mortgage loans should start promoting the real estate market and construction. Last but not least, the forthcoming parliamentary elections expected some increase in government spending, though by no means strong, with regard to the medium-term plan for fiscal consolidation. In the aggregate, would not surprise me, the pace of economic growth this year of between one and 1.5%. Inflation could record thanks to milder decline against the above estimates, expect annual average levels around 2.5%. A lot will depend on the exchange rate. In the event that the CNB actually accede to some form of intervention and be successful, inflation can be maintained at or above three percent.


Ondřej Matuška

Portfolio Manager

Conseq Investment Management as

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