Growth in the Czech economy continues
Economic development in the Czech economy has remained roughly stable for some time. The economy is undergoing gradual recovery, with GDP growth around 2%, primarily driven by household demand. Conversely, weak developments in Germany and global economic uncertainty, including US tariffs, exert downward pressure. A similar trend is expected next year. The labor market situation remains favorable, with continued low unemployment and nominal wage growth between 6% and 7%. Overall inflation is currently slightly above 2%, anchored within the tolerance band, mainly driven by rising food and services prices. A similar trend is anticipated in the coming quarters.
Given the strong growth in service sector prices, which reached 4.9% in May and is expected to weaken only very slowly, we anticipate CNB rate stability for the next few meetings. A further rate cut might occur towards the end of this year, but much will depend on the overall global economic situation and US tariffs. The CNB currently provides no guidance and communicates that all options are open. This also pertains to the neutral rate level, set at 3% in the CNB's forecast, though several board members suggest they view it higher. This could subsequently influence the main rate level where the current rate-cutting cycle halts. We believe the koruna's exchange rate is currently near macroeconomic fundamentals. In the medium term, we expect a gradual strengthening of the koruna.
Author
Erste Bank Research Team
Erste Bank
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