Country Report Czech Republic September 2017

Country Report Czech Republic September 2017

  • September 2017 •
  • Report ID: 2557534 •
  • Format: PDF

Outlook for 2017-21



  • Despite a political crisis in May 2017, The Economist Intelligence Unit expects the centrist three-party coalition led by the Czech Social Democratic Party (CSSD) to remain in office until the general election on October 20th-21st 2017.
  • Our core forecast is that ANO, the junior coalition partner led by Andrej Babis, who until recently was finance minister, will win the largest vote share in the general election and become the senior partner in the next coalition.
  • We expect real GDP growth of 4.5% in 2017, driven by private consumption-given strong employment and wage growth-a recovery in investment and strong export growth. In 2018-21 we forecast annual average growth of 2.5%.
  • The budget deficit will stay well within 1% of GDP in 2017-21, after moving into surplus in 2016. Public debt will decline from 36.8% of GDP in 2016 to about 31% of GDP by 2021, aided by robust nominal GDP growth.
  • We expect average inflation to exceed the 2% target of the Czech National Bank (CNB, the central bank) in 2017, partly reflecting a rise in oil prices.
  • Following the lifting of the ceiling on the value of the koruna in April 2017 the currency has appreciated mildly, and we expect this trend to continue over the medium term. The CNB will raise interest rates gradually in 2017-18.
  • A trade surplus will be maintained in 2017-21, but the current-account surplus will decline and move into deficit in 2020 as higher import costs and rising domestic demand gradually erode the goods and services surpluses.
  • We do not expect euro zone accession in 2017-21.


Review



  • A request by the police on August 10th for Mr Babis's parliamentary immunity to be lifted drew public attention to the ongoing investigations, at both Czech and European levels, into whether Mr Babis's Stork's Nest conference centre was constructed using misappropriated EU funds.
  • The French president, Emmanuel Macron, met with the Czech, Slovak and Austrian leaders in Salzburg, Austria, to discuss reforms to the labour market rules that apply to workers posted temporarily abroad within the EU.
  • Annual real GDP growth accelerated to 4.5% in the second quarter of 2017 (seasonally and working-day adjusted), according to a flash estimate from the Czech Statistical Office. Quarterly growth of 2.3% was the fastest on record.
  • The current account recorded a surplus of Kc153bn (US$7bn) in January-June 2017, only slightly smaller than that in the year-earlier period (Kc165bn).
  • Price growth picked up to 2.5% year on year in July, justifying the decision of the central bank to raise interest rates.


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