Czech Republic Economic Forecast

Czech Rep. Economic Outlook

October 2, 2018

Although GDP growth cooled to a year-and-a-half low in Q2, available data points to upbeat economic activity in Q3. The unemployment rate remained steady in August after ticking up in July from an all-time low in June. This, coupled with nominal wage growth at its fastest in over a decade, have shored up household purchasing power, which likely contributed to the surge in retail sales in July. Similarly, on the supply side, industrial production expanded at the fastest annual clip so far this year in July, propelled by a jump in manufacturing output. That said, sound hard data has come at odds with leading indicators: Consumer confidence, business sentiment and the manufacturing PMI averaged lower in Q3 compared to Q2. Meanwhile, Prime Minister Andrej Babis’ minority government finalized the 2019 draft budget on 19 September, prioritizing increased spending in investments, pensions and public sector salaries; nonetheless, it targets a smaller deficit compared to 2018’s. Babis will need backing from the Communist Party yet again for parliamentary approval, after their support enabled his government’s survival of the confidence vote in July.

Czech Republic Economic Growth

The economy is expected to lose steam this year and next. However, the pace of growth should remain robust thanks to healthy household spending gains, underpinned by a nearly-exhausted labor market and brisk wage growth, as well as by planned increases in government spending, particularly higher infrastructure investment. Heightened uncertainty and potential spillover effects from deteriorating global trade conditions cloud the outlook due to the export-oriented nature of the country’s industrial base. Met the why particular Consensus Forecast panelists see GDP growing 3.2% in 2018 and 3.0% in 2019, which is unchanged from last month’s projection.

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Czech Republic Facts

Bond Yield2.17-1.85 %Oct 18
Exchange Rate22.48-0.66 %Oct 18
Stock Market1,087-0.11 %Oct 18

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