Economic policy / Macroeconomic Indicators, Economic Growth
This section reports on economic policy initiatives of the Czech government, the EU, and other entities that have a direct impact on the competitiveness of the country. It also includes information on economic priorities of the AmCham and other leading associations.
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Spotlight issue
Inflation is still not easing – rather the opposite
Inflation in September again surprised with higher-than-expected growth. The main driver is housing costs, including the incipient rise in energy prices. Year-on-year core inflation rose to 6%. There is no doubt that the CNB will continue to raise interest rates.
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The CNB surprised with a 75bp rate hike
The central bank raised its key repo rate by 75bp at its September meeting, whereas the market expected a 50bp hike. The strong rate increase is primarily a response to rising inflation, which is already reflected in higher inflation expectations. According to our forecast, inflation will continue to rise for the rest of the year, exceeding 5% yoy at its end. Therefore, we expect a repo rate of 2.00% at end-2021 and a further increase to 2.50% at end-2022. This is close to the level that the central bank considers to be monetary policy neutral.
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Czech economic rebound in 2Q supported by rapid easing of COVID restrictions
The third and final CZSO estimate published today confirmed that Czech GDP increased 1.0% qoq in 2Q after a 0.4% decline in 1Q. In year-on-year terms, the economy grew 8.1% (the previous estimate was 8.2% yoy), with a significant effect of a lower base from 2Q20. Economic activity almost reached pre-crisis levels, hitting 95% of the level seen in 4Q19.
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