According to the preliminary estimate of the Czech Statistical Office (ČSÚ), the Czech economy grew by 0.4 percent year-on-year in the first quarter of this year. The CNB forecast predicts faster economic growth next year. There, the central bank also upgraded the outlook, now projecting GDP growth of 2.7 percent, compared to 2.4 percent expected in February.
Inflationary pressures in the economy are fading, this year’s inflation should decrease to 2.3 percent from last year’s 10.7 percent, according to the forecast. For next year, the CNB kept its February estimate, when it still expects consumer prices to grow at its two percent target for the whole year.
“Our prediction assumes that in the coming months inflation will increase slightly due to the increase in the price of fuel and the easing of the drop in food prices, in the rest of this year it will move close to the two percent target,” Michl pointed out.
The CNB reduced the rate to 5.25 percent
Economy
According to him, the Czech economy rebounded from the bottom at the end of last year, and growth continued at the beginning of this year. Both foreign demand and household consumption contributed to year-on-year growth. “With the drop in inflation, the growth of real household incomes is resuming,” said Michl.
However, according to CNB analyses, the economy continues to move below its potential and demand from the domestic and foreign economies remains weak. It is partially dampened by a strict monetary policy, it is also mitigated by the increased generation of savings due to the caution of households and the attractive appreciation of deposits. According to Michl, the tension on the labor market is decreasing slightly, but unemployment remains low. “For foreign demand, we are observing signs of recovery and the forecast predicts its acceleration during this year,” he pointed out.
The bank board assessed the risks and uncertainties of the basic scenario as slightly pro-inflationary, i.e. in the direction of higher inflation. As a pro-inflationary risk, Michl mentioned a slower fading of increased inflationary expectations, higher than the assumed inertia of service price growth or the development of the koruna exchange rate. A stronger-than-expected deterioration in global economic activity and the weaker development of the German economy could work against inflation. The future setting of foreign monetary policy is uncertain, he noted.
In the new forecast, the CNB changed its estimate of this year’s average exchange rate of the koruna to the euro, expecting it at the level of CZK 25.10 per euro, while in February it was CZK 24.60/EUR. Next year, the CNB expects a slight strengthening of the koruna to an average exchange rate of CZK 24.80/EUR.
The economy grew in the first quarter. It is pulled by households
Economy
