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
The CNB continues to tighten monetary policy
As expected, the central bank raised its key repo rate from 0.50% to 0.75% at its August meeting. Although the bank board discussed a 50bp hike, as proposed by the new CNB forecast, in the end it preferred a gradual normalisation of monetary policy. According to Governor Rusnok, the CNB should continue to pursue gradual normalisation for the rest of the year. While the CNB forecast calls for a repo rate of 1.50% at year-end, we expect 1.25% due to the cautious approach of central bankers. However, we already expect a repo rate of 2.25% for end-2022, while the CNB expects 2%. The difference is mainly our expectation of a stronger economic recovery, with a slightly weaker koruna.
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Outlook: EU Recovery Fund set to further strengthen CEE’s economic upswing
CEE economies expected to post GDP growth between 3.7% and 6.9% in 2021
EU Recovery Fund promises to boost GDP levels in 2026 by additional 0.7% to 2.9%
Required structural reforms may trigger increased investment and co-financing
Erste Group outlook: significantly higher full-year earnings expected in 2021
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Orders are growing but components for production are missing
In May, industrial production fell more than expected month-on-month after the previous expansion. The reason is the limited supply of production components. The year-on-year comparison is still strongly influenced by last year's slump. Weaker industrial production was also reflected in a reduction of the foreign trade surplus. On the other hand, construction grew slightly in May. From the financial market point of view, production data surprised negatively; however, this should not affect the expected further tightening of monetary policy.
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