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Czech Economic Outlook: Stop to the Virus, Back to the Normal

Company: Komerční banka, a.s.

Czech economy recovers With the end of lockdown, the economy has quickly started to reopen. In majority of cases, activity will try to return to pre-crisis levels, but that will not be possible in all areas. We do not expect GDP to return of the to pre-COVID-19 level until 2022. The forecasts remain strongly uncertain and the coming months will unveil how much damage has been done.

The inflation will decelerate Consumer prices will be elevated with the weaker CZK and more expansive food. According to our estimates these will be outweighed by the impact of weak demand and lower oil prices and the inflation will decelerate below the 2% CNB inflation target.

The restart of the economy will return the koruna to stronger value Low interest rates make the koruna less attractive and prevent it from appreciation. In the second half of the year, however, there should be an economic recovery and, with it, a belief in monetary policy normalization.

High demand pushes CZGBs yields down Despite the unprecedented issuance of government bonds and the worsening outlook for public finances, investor interest is not waning. The wave of monetary condition easing has pushed market interest rates to their cyclical bottom. In the second half of the year, we expect them to rise gradually.

More information attached.

Tags: Economics | Finance |

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