The Czech Statistical Office (CZSO) revised the GDP statistics for 4Q17. Qoq growth was adjusted to 0.8% (from originally 0.5%) and yoy to 5.5%. The all-year growth in 2017 thus reached 4.6%. The revision was made mainly on the back higher government expenditures compared with previous estimates. The investments were also revised slightly up, but the move was offset by a downward revision of inventories. Besides government consumption, growth in 4Q was driven by all items of domestic demand. External trade contributed slightly negatively. Private consumption and investment activity were the main growth drivers, contributing roughly 2pp each. The inventory built increased significantly and added another percentage point. On the supply side, we see two dominant drivers. The value added in industry increased 7.4% while private services grew 6.3%. These two components thus created a major part of the GDP dynamics. 

The CNB forecast released in early January met with disappointment in the markets which expected the swift normalisation of monetary policy to continue. CNB expects only one hike at the very end of the year with CZK set to appreciate rapidly as early as the second quarter. We do not expect a rate hike to be announced at Thursday’s meeting. The risks to the forecast are likely to be assessed as balanced or even slightly negative, as the figures from the real economy slightly disappointed and current inflation eased more than expected. Only CZK refuses to appreciate and thus represents a pro-inflationary risk. We expect inflation to recover on the back of strong economic conditions and CNB to hike twice in the second half of the year.