GDP revision improves Czech growth outlook

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GDP revision improves Czech growth outlook

Forint at 9-month high

The Czech statistical office has painted a more favorable picture of the Czech economy today than was that suggested by preliminary figures. According to today’s release, the Czech GDP grew by 0.4 % q/q in 2014Q4 (by 0.2 percentage points more than the first release had guessed). In annual terms, GDP increased by 1.5 %. Regarding the growth structure, the economy was more than expected driven by domestic demand and investments. The Czech economic growth has thus been transforming from an export-dependent to a domestic-demand-driven one, creating thereby, in our view, a solid base for future growth. Low inflation has obviously not harmed the economy so far. Rather the contrary appears to be true. Capped by falling commodity prices, low inflation has improved financial situation of households and encouraged them to raise their real spending. In spite of the beneficial impact of weaker koruna on the economy, though, we do not believe that the CNB would consider shifting the current intervention threshold of the koruna unless the currency spontaneously strengthens close to the limit of 27 EUR/CZK, which central bankers had committed themselves to defend.

Regarding other CEE markets, the Hungarian forint continued its rally yesterday and hit its 9-month high. The forint remains to be supported by positive fundamentals together with a less dovish statement of the NBH following its last rate-setting meeting. No wonder then that relatively high yields of Hungarian bonds have been attracting robust demand.