Czechia: Recovery of the economy
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Czech economy has been recovering.
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CNB to continue with rate cuts.
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Yield curve affected by market expectations.
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Koruna has appreciated notably.
The recovery of the Czech economy continues, powered predominantly by household consumption. Foreign demand is predicted to eventually join forces, potentially accelerating GDP growth to around 3% in subsequent years. Labor market conditions remain positive. Despite a marginal projected rise, unemployment seems poised to remain low. Additionally, real wages are set to resume growth this year, further fuelling demand within the economy.
Inflationary impulses were amplified in 2Q, primarily due to a heightened household appetite for shopping. Nevertheless, inflation stayed within the tolerance band around the inflation target. However, a temporary shift is anticipated by year-end, with inflation likely surpassing 3%. We envisage the CNB continuing with rate cuts at a moderate pace, with expected standard 25-point steps. Its stance on inflation spikes in 4Q24 remains uncertain, posing a risk of a slowdown in rate cuts. After a significant appreciation, we predict a stable koruna, with year-end levels close to the current one.
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