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
Industry dropped strongly due to car manufacturers
Industry fell sharply below all estimates in August, mainly due to a drop in car production. Hand in hand with this, the foreign trade balance also deteriorated. Construction output grew slightly. In summary, the published data were worse than expected, and although it is not good to draw strong conclusions from the summer months, supply chain problems appear to continue to weigh heavily on industry.
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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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