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Economic outlook: Omens of strong growth

Company: Komerční banka, a.s.

First omen The Czech Republic’s economic momentum picked up in 1Q17, and we believe this was maintained in 2Q. We expect full-year growth of 3.7% in 2017 and 3.1% in 2018. 

Second omen Wage growth has accelerated significantly, and we forecast the 2017 average at 6.4%. This would push inflation higher, but price growth will likely be dragged down by external factors. Overall, we expect inflation to print at 2.3% in 2017 and decelerate slightly to 2.2% in 2018. 

Third omen Long-term inflationary pressure should allow the CNB to raise rates twice this year. In August, we expect it to become the first central bank in the EU to raise rates in the current cycle, in our view.  

Fourth omen The koruna is appreciating. Since the exchange rate floor was scrapped, it has gained 3.5% against the euro. This upward trend should continue. We expect EUR/CZK to hit 25.50-25.70 by autumn.

Fifth omen Interest rate swaps are set to rise faster due to the CNB’s hikes. Short-end CZGB yields should remain muted due to strong demand, as markets anticipate the koruna strengthening.

More information attached. 

Tags: Finance | Business Development |

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