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2020/11/27 / Erste Group Research

Gradual recovery of the Czech economy

The Czech economy will recover in the next year and accelerate its growth in 2022, when it will reach the pre-crisis level of GDP. Although economic development could also be negatively affected by COVID-19 in 1Q21, we expect a strengthening economic recovery in both domestic and foreign demand from 2Q21, mainly due to improved economic sentiment, loose fiscal and monetary policies, and EU funds. The labor market remains relatively strong; however, it will probably slightly (albeit temporarily) worsen at the 2020/21 turn.

Although inflation will slow down towards the inflation target at the beginning of 2021, it will start strengthening again from 2H21, as a consequence of an economic recovery and tax changes positively affecting household demand. To keep inflation within the tolerance band, we expect the CNB to start policy tightening from November 2021; however, the risk is tilted towards an even earlier (3Q21) hike. The koruna will also strengthen in the coming years. Among the most important drivers, the expected monetary policy tightening and improved market sentiment will be the key factors.


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General information

AuthorErste Group Research
Date2020/11/27
Languageen
Product nameCEE Country Macro Outlook
Topic in focusFX, Macro/ Fixed income
Economy in focusCzech Republic
Currency in focusCzech Koruna
Sector in focus-
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