Erste Group Research
Czechia | Macro Outlook
13.09.2022
Czechia | Macro Outlook
Surprisingly positive growth in 1H22
Another interest rate hike is less likely
Yield curve affected by market expectations
The koruna remains stable
Economy (%) 2022e 2023e 2024e
GDP (real, y/y) 2.3 0.9 3.7
Unempl. Rate 2.6 3.3 3.4
CPI (y/y) 15.8 7.0 2.1
Retail Sales (y/y) -2.1 -0.3 3.7
Ind. Prod. (y/y) 0.6 0.2 3.8
Public Debt/GDP 43.3 44.0 44.6
Source: Erste Group Research
Market Spot 22Q4 23Q1 23Q2
EUR/CZK 24.50 24.50 24.36 24.29
USD/CZK 24.31 23.33 22.98 22.28
Target Rate (%) 7.00 7.00 6.00 5.25
3M Rate (%) 7.26 7.07 6.04 5.27
2Y Bond (%)* 5.86 5.23 4.43 3.82
5Y Bond (%)* 4.99 5.14 4.87 4.57
10Y Bond (%)* 4.47 4.37 4.16 3.89
Source: FactSet, Erste Group Research
Rating Current Outlook
Moodys Aa3 stable
S&P AA- stable
Fitch AA- neg
Source: Erste Group Research
General 2022
Population mn 10.5
GDP/Capita EUR 26,198
Source: Erste Group Research
Spot Rates as of:
12th Sep. 2022
All Research on Czechia:
erstegroup.com/research
Analysts:
David Navratil
DNavratil@csas.cz
+420 956 765 439
Jiri Polansky
JPolansky@csas.cz
+420 956 765 192
Note:
*Information on past performance is not a
reliable indicator for future performance.
Forecasts are not a reliable indicator for future
performance.
In the rest of this year, the development of the Czech economy will probably
worsen, due to both lower domestic as well as foreign demand. In this respect,
we expect a mild recession, but both-sided uncertainty remains high, due to
external factors. Although a slight increase in the unemployment rate is
expected, the labor market worsening during this year goes mainly through
decreasing real wages affected by high inflation. Next year, economic recovery
should take place, which will also be supported by a gradual reduction in
inflation, improved foreign demand and lowering the CNB rates.
We expect the CNB to keep rates stable until the beginning of the next year.
However, the probability of an earlier cut (e.g. November) has been increasing,
mainly due to the recent shift of the MP horizon, the lower than expected
August inflation figure, price caps on electricity and gas and the expected
economic worsening. The koruna has been relatively stable, and we expect
such a development to continue in the coming months. The koruna could start
appreciating again in the next year, although its pace will probably be mild, in
our view.
GDP (real,y/y)
3.0%
-5.5%
3.5%
2.3%
0.9%
3.7%
2019 2020 2021 2022e 2023e 2024e
-10.0%
-5.0%
0.0%
5.0%
Source: Erste Group Research
Erste Group Research 1
Erste Group Research
Czechia | Macro Outlook
13.09.2022
GDP
Surprisingly positive growth in 1H22
GDP growth in the first half of this year was surprisingly strong, as the Czech
economy reached positive q/q growth in both quarters, and thus showed
resistance to adverse external shocks. Investments, both fixed and inventory,
contributed significantly to this. However, we see the current inventory stocks
as too high, and thus their deaccumulation could slow down GDP growth in
the coming years. In 1H22, GDP growth was negatively influenced by net
exports, mainly due to supply-side problems in the automotive sector and
relatively high domestic demand positively affecting imports.
Given the surprisingly favorable development in 1H22, we expect GDP growth
to be slightly above 2% in 2022. The expected deterioration of economic
development in the next few quarters will thus become more pronounced in
the data for 2023, when GDP growth may remain slightly below 1%.
Uncertainty remains high, especially as external factors will be key. In our
view, a recovery could already take place during the next year, and GDP
could thus grow by almost 4% in 2024, mainly due to the improved
investments and foreign trade. Household consumption is likely to recover
more slowly.
GDP (real, s.a., q/q)
0.6%
0.5%
-0.8%
-0.3%
0.0%
0.8%
22Q1 22Q2 22Q3 22Q4 23Q1 23Q2
-1.0%
0.0%
1.0%
Source: Erste Group Research
Annual 2020 2021 2022e 2023e 2024e
GDP real -5.5% 3.5% 2.3% 0.9% 3.7%
CPI (y/y) 3.2% 3.8% 15.8% 7.0% 2.1%
Private Consumption -7.4% 4.0% 0.8% 0.3% 2.9%
Source: Erste Group Research
Erste Group Research 2
Erste Group Research
Czechia | Macro Outlook
13.09.2022
Inflation
Pro-inflationary effects of demand are already weakening
Although annual inflation unexpectedly slowed down in August, we expect it to
strengthen in the 3Q/4Q turn with a peak around 19%, mainly due to a further
rise in energy prices and partly also in food prices. In contrast, the proinflationary
effects of demand are already weakening. From this year's peak,
inflation should gradually return to the inflation target, which will take a little
over a year. On September 12, the government approved caps on electricity
and gas prices. This could contribute to a relatively quick slowdown of inflation
over the next year.
Monetary Policy
Another interest rate hike is less likely
As the most likely scenario, we expect stability of policy rates until February,
followed by a relatively quick policy loosening, due to a gradual return of
inflation towards the target. Risks are both-sided. On one hand, we still cannot
rule out a hike, although the probability of such a move is decreasing
considerably, in our view. On the other hand, and much more importantly, the
CNB could cut rates already this year (e.g. in November), which could be a
consequence of the economic worsening, recent shift of the MP horizon or
current inflation figures, which are below the CNB forecast.
Short Term Yields
Target Rate 3M Rate
2018 2020 2022 2024
-2
0
2
4
6
8
Source: FactSet, Erste Group Research
Market (%) Spot 22Q4 23Q1 23Q2 23Q3
Target Rate 7.00 7.00 6.00 5.25 4.50
3M Rate 7.26 7.07 6.04 5.27 4.51
Source: FactSet, Erste Group Research
Erste Group Research 3
Erste Group Research
Czechia | Macro Outlook
13.09.2022
Bond Yields
Yield curve affected by market expectations
The yield curve remains relatively high, and its slope continues to be negative.
This is influenced by high CNB rates, which are more pronounced at the short
end of the curve, while the longer end is more affected by low rates in the
Eurozone. According to our estimates, the curve is now higher compared to
the economic fundamentals, which is probably also influenced by market
expectations, which suppose a further increase in CNB rates and then a
longer period of their stability.
For the rest of this and the next two years, we expect a gradual downward
movement in the yield curve and its flattening. If the CNB does not raise rates
this year and starts to announce their first rate cut to come, the market will
relatively quickly adjust its expectations downwards. In the next two years, the
curve will be pulled down by falling CNB rates and lower emission activity of
the government. Rising rates in the Euro Area will act in the opposite
direction.
Generic Bond Yields (%)
2Y Bond 10Y Bond
2018 2020 2022 2024
-2
0
2
4
6
8
Source: FactSet, Erste Group Research
Market Spot 22Q4 23Q1 23Q2 23Q3
2Y Bond* 5.86 5.23 4.43 3.82 3.36
5Y Bond* 4.99 5.14 4.87 4.57 4.30
10Y Bond* 4.47 4.37 4.16 3.89 3.67
Source: FactSet, Erste Group Research
Note:
*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable
indicator for future performance.
Erste Group Research 4
Erste Group Research
Czechia | Macro Outlook
13.09.2022
Czech Koruna
The koruna remains stable
The koruna remains relatively stable, due to a slight calming down of
sentiment in the markets and the CNB's readiness to use FX interventions to
prevent significant fluctuations in the koruna. We do not expect the koruna to
move much in the coming weeks, as the CNB will probably not allow it to
weaken; however, it is also not likely that there would be some reason for a
significant strengthening of the koruna, as the CNB will not hike, and the
development of the Czech economy will worsen.
For the next two years, we expect only a relatively moderate appreciation of
the koruna. On the strengthening side, the koruna will be driven by an
improvement in market sentiment (although this is unlikely to happen in the
short term) and a renewed convergence of the Czech economy towards more
developed European countries. Falling CNB rates will have the opposite
effect. The risks are significant and skewed towards a weaker koruna, mainly
due to global uncertainties.
EUR/CZK
2018 2019 2020 2021 2022 2023 2024
22
24
26
28
Source: FactSet, Erste Group Research
Spot 22Q4 23Q1 23Q2 23Q3
EUR/CZK 24.50 24.50 24.36 24.29 24.21
vs. Spot 0% -0.6% -0.9% -1.2%
USD/CZK 24.31 23.33 22.98 22.28 22.01
vs. Spot -4% -5.5% -8.4% -9.5%
Source: FactSet, Erste Group Research
Erste Group Research 5
Erste Group Research
Czechia | Macro Outlook
13.09.2022
Politics
Relatively strong parliamentary majority
The result of the October parliamentary election meant that five parties
formed a government coalition with a (by Czech standards) relatively strong
parliamentary majority of 108 seats out of 200. Thus, the risk of political
instability should be lower during this election term, although we cannot rule
out some tensions, given the recent development with energy prices. The
government is center-right and pro-European.
Among its key plans, the new government included budget responsibility after
its appointment. As a first step, the planned deficit for this year was
decreased, with a further reduction in the coming years. Although the current
situation implies higher than expected expenditures, the government still aims
for a gradual improvement of public finances in the coming years. From a
longer-term perspective, however, an increase in taxation cannot be ruled out,
given the high structural deficit.
Parliament Seats
36 %
17 % 17 %
12 %
10 %
7 %
2 %
ANO | left
Civil Democratic Party | right
Mayors and Independents | center
Christian Democrats (KDU-CSL) | center, religious
Freedom and Direct Democracy | populists
TOP 09 | right
Czech Pirate Party | center
Source: Erste Group Research
Last Election:
2021, October
Next Election:
2025, October
Erste Group Research 6
Erste Group Research
Czechia | Macro Outlook
13.09.2022
Forecasts
Annual 2016 2017 2018 2019 2020 2021 2022e 2023e 2024e
Real GDP growth 2.5 5.3 3.2 3.0 -5.5 3.5 2.3 0.9 3.7
Inflation (CPI, avg) 0.7 2.4 2.2 2.8 3.2 3.8 15.8 7.0 2.1
Unemployment rate (avg) 4.0 2.9 2.3 2.0 2.6 2.9 2.6 3.3 3.4
Retail sales growth 4.7 5.9 5.0 4.8 -0.8 4.2 -2.1 -0.3 3.7
Industrial output growth 3.0 6.7 3.1 -0.4 -6.9 6.2 0.6 0.2 3.8
Private consumption growth 3.7 4.0 3.3 2.6 -7.4 4.0 0.8 0.3 2.9
Fixed capital formation growth -3.1 5.1 10.0 5.9 -6.0 0.6 4.3 1.2 4.1
Percent of GDP
Trade balance 3.4 3.1 1.8 2.5 3.2 -0.1 -2.5 1.1 2.0
Current account balance 1.8 1.5 0.4 0.3 2.0 -0.8 -2.8 0.3 1.1
Foreign direct investment 78.0 77.3 76.4 75.5 80.6 80.8 80.0 79.3 n.a.
Budget balance 0.7 1.5 0.9 0.3 -5.8 -5.9 -4.7 -3.7 -2.8
Public debt 36.6 34.2 32.0 30.0 37.6 42.0 43.3 44.0 44.6
External debt, gross 72.9 85.5 80.5 75.0 75.5 76.5 76.1 75.5 n.a.
FX, money market
USDLCY average 24.44 23.38 21.74 22.93 23.22 21.68 23.38 22.34 20.64
EURLCY average 27.03 26.33 25.65 25.67 26.46 25.64 24.61 24.27 23.88
EURLCY eop 27.02 25.51 25.72 25.42 26.24 24.89 24.50 24.15 23.70
(percent)
CB policy rate (avg.) 0.05 0.17 1.06 1.92 0.77 0.88 5.95 5.27 3.21
3m interbank offer rate (avg.) 0.29 0.41 1.27 2.12 0.86 1.13 6.26 5.21 3.23
2Y Yield (average)* -0.31 -0.20 1.06 1.57 0.59 1.59 5.41 3.83 2.53
5Y Yield (average)* -0.05 0.20 1.48 1.42 0.87 1.85 4.78 4.54 3.71
10Y Yield (average)* 0.44 1.06 2.02 1.61 1.18 1.96 4.25 3.88 3.25
Source: Erste Group Research
Note:
*Information on past performance is not a reliable indicator for future performance. Forecasts are not a reliable indicator for future performance.
Erste Group Research 7
Erste Group Research
Contacts | Macro Outlook
13.09.2022
Contacts
Group Research
Head of Group Research
Friedrich Mostböck, CEFA®
, CESGA®
+43 (0)5 0100 11902
CEE Macro/Fixed Income Research
Head CEE: Juraj Kotian (Macro/FI) +43 (0)5 0100 17357
Katarina Gumanova (Fixed income) +43 (0)5 0100 17336
Katarzyna Rzentarzewska (Fixed income) +43 (0)5 0100 17356
Croatia/Serbia
Head: Alen Kovac (Fixed income) +385 62 37 1383
Mate Jelic (Fixed income) +385 72 37 1443
Ivana Rogic (Fixed income) +385 62 37 2419
Czech Republic
Head: David Navratil (Fixed income) +420 956 765 439
Jiri Polansky (Fixed Income) +420 956 765 192
Michal Skorepa (Fixed income) +420 956 765 456
Hungary
Orsolya Nyeste (Fixed Income) +36 1 268 4428
Janos Nagy (Fixed Income) +36 1 272 5115
Romania
Head: Ciprian Dascalu +40 3735 10108
Eugen Sinca (Fixed income) +40 3735 10435
Dorina Ilasco (Fixed Income) +40 3735 10436
Vlad Nicolae Ionita (Fixed Income) +40 7867 15618
Slovakia
Head: Maria Valachyova, (Fixed income) +421 2 4862 4185
Matej Hornak (Fixed income) +421 902 213 591
Major Markets & Credit Research
Head: Gudrun Egger, CEFA®
+43 (0)5 0100 11909
Ralf Burchert, CEFA®
(Sub-Sovereigns & Agencies) +43 (0)5 0100 16314
Hans Engel (Senior Analyst Global Equities) +43 (0)5 0100 19835
Margarita Grushanina (Economist AT, Quant Analyst) +43 (0)5 0100 11957
Peter Kaufmann, CFA®
(Corporate Bonds) +43 (0)5 0100 11183
Stephan Lingnau (Global Equities) +43 (0)5 0100 16574
Heiko Langer (Financials & Covered Bonds) +43 (0)5 0100 85509
Bernadett Povazsai-Römhild, CEFA®
, CESGA®
(Corporate Bonds)
+43 (0)5 0100 17203
Carmen Riefler-Kowarsch (Financials & Covered Bonds) +43 (0)5 0100 19632
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(Corporate Bonds) +43 (0)5 0100 19641
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(Economist Euro, CHF) +43 (0)5 0100 16360
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(Technology/Industrial
Goods&Services)
+43 (0)5 0100 17420
Michael Marschallinger, CFA +43 (0)5 0100 17906
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(Equity) +385 62 37 2825
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Hungary
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(Equity) +361 235-5135
Poland
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Romania
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Treasury - Erste Bank Vienna
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Slovakia
Sarlota Sipulova +421 2 4862 5619
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Institutional Distribution CEE & Insti AM CZ
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Jaromir Malak +43 (0)50100 84254
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Head: Ondrej Cech +420 2 2499 5577
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Institutional Asset Management Czech Republic
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Erste Group Research 8
Erste Group Research
Macro Outlook | Disclaimer
13.09.2022
Disclaimer
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Erste Group Research 9