Czech Economic Quarterly - High Demand, Low Productivity Growth
- In 4Q16, real GDP rebounded to 0.4% qoq, moving the yoy dynamic one notch up to 1.9%. Private consumption (0.9% qoq / 2.8% yoy) proved to be the major driving force of growth. Fixed capital formation (-6.1% yoy) further deepened its decline, whereas inventory accumulation added to GDP growth 0.9pp. The contribution of net exports to GDP growth doubled from 3Q16 to reach 1.2pp.
- January data came in relatively firm, offsetting poorer figures from the previous month. Industrial output headed the positive element in data, posting 9.6% yoy. There is every reason to believe that GDP growth will further strengthen in 1Q17. We have raised our forecasts to 0.8% qoq and 2.3% yoy.
- The cyclical recovery in the global economy is set to extend through the remainder of 2017, unless curbed by US protectionist policies or surging risks of the Eurozone breakup. Full-2017 GDP growth is projected at 2.6% with risk tilted towards a slightly higher reading.
- The EUR-CZK floor at 27.0 is likely to be removed after the next CNB forecast revision due in early May. Abandoning the EUR-CZK floor could push the cross initially below 27.00, but ensuing FX volatility could prevail in the weeks following the move to a managed float. We stick to our forecasts of EUR-CZK at 26.50 at the end of 2017 and 26.00 at the end of 2018.