The new forecast of the Czech Banking Association improved the estimate of the growth of the domestic economy to 1.4 percent for this year. He expects growth of 2.7 percent for next year.
This year’s recovery of the Czech economy will be gradual, but growth should accelerate next year. Inflation will remain at the Czech National Bank’s (ČNB) target of two percent this year and next. This is how the Czech Banking Association predicts the development.
The chief economists of the banks represented in the forecasting panel of the Czech Banking Association expect that the domestic economy will grow by 1.4 percent this year, and thus slightly improved their estimate compared to the February forecast.
“The Czech economy, now supported by the revival of household consumption, exports and investments, is finally overcoming the pandemic slump. In 2025, we expect a slight acceleration of growth thanks to the positive contribution of all key components, without being slowed down by drawing down stocks from the pandemic,” said Helena Horská, chief economist of Raiffeisenbank.
The forecast assumes that economic growth will be mainly driven by domestic demand. After the decline in the previous two years, household consumption should begin to grow again, by 2.5 percent. Real wages are expected to grow by nearly four percent this year, but some of this growth will be dampened by the effects of the consolidation package. Real wages could reach their 2021 high so far next year.
“The data on public finances look exceptionally good,” said Jan Bureš, Patria Finance’s chief economist. According to him, it is also thanks to the consolidation package. Bureš estimates that this year the Czech deficit will represent 2.7 percent of GDP.
According to Helena Horská, the Czech Republic will be one of the few countries that will meet the so-called Maastricht criteria.
According to experts, average inflation will drop to 2.3 percent this year and should remain at a similar level next year as well.
“Inflation in the Czech Republic dropped significantly at the beginning of 2024 thanks to a significant year-on-year drop in food prices. However, their positive effect will fade in the coming months, and thanks to the inertial inflation of services, we expect inflation at higher levels of around 2.8 percent by the end of the year,” estimates Jan Bureš. In fact, he warned that the drop in inflation is due to the sharp discounting of food, which will not happen again, and the reduction of prices in this sector will not help to push inflation down.
According to the CBA, CNB interest rates will continue to fall, and this year the CNB base rate should reach the level of four percent, and next year it should reach 3.5 percent. In the new forecast, the exchange rate of the koruna was reassessed towards weaker values, and on average this year it should hover around the 25 crown per euro mark, next year the koruna should strengthen to the 24.60 crown mark per euro.
“Developments abroad have shifted slightly in an optimistic direction in recent months, which cautiously improves the outlook for foreign demand and makes it possible to improve the growth of the domestic economy for this year to 1.4 percent. However, growth can still be characterized as fragile, both in connection with developments in China, but also in Germany, which, as a domestic economy, is also facing a number of challenges with regard to the energy demand of industry and structural changes in the automotive sector,” said Jakub Seidler, head CBA economist.
