Czech Republic Country Risk Report Q3 2018
Real GDP growth in the Czech Republic peaked in 2017, but will remain solid over the coming years and outperform the wider EU. However, in the absence of strong productivity gains, the country's tight labour market will put upward pressure on unit labour costs, and begin to weigh on the country's competitiveness.
With a budget surplus in 2017 and already low public debt load of around 35% of GDP, the fiscally conservative stance of the next Czech government will see fiscal metrics improve further, underpin-ning the country's robust sovereign profile.
Although the incoming government will be positive for growth on account of its business-friendly reform and tax cutting agenda, its populist ideologies will align the Czech Republic closer with euro-sceptic peers in Poland and Hungary, raising tensions with the EU.
After becoming the first Central and Eastern Europe central bank to hike interest rates in 2017 on account of rising inflation, the Czech National Bank will continue a relatively aggressive rate hiking cycle in 2018, supporting further koruna appreciation. We forecast 75bps of interest rate hikes in 2018, bringing the policy rate to 1.25%.
On the back of strong household demand, the trade surplus will slightly narrow, but the country's current account will stay relatively balanced in the years ahead.
Executive Summary Core Views Key Risks Chapter 1: Economic Outlook SWOT Analysis BMI Economic Risk Index Economic Growth Outlook Growth To Cool As External Demand Weakens And Labour Gains Slow GDP By Expenditure Outlook TABLE: GDP GROWTH FORECASTS TABLE: PRIVATE CONSUMPTION FORECASTS TABLE: GOVERNMENT CONSUMPTION FORECASTS TABLE: FIXED INVESTMENT FORECASTS TABLE: NET EXPORTS FORECASTS External Trade And Investment Outlook Narrowing Surpluses Ahead Outlook On External Position TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE TABLE: CURRENT ACCOUNT BALANCE FORECASTS TABLE: TOP 5 IMPORTS IN 2017 TABLE: TOP 5 EXPORTS IN 2015 Monetary Policy Rising Inflation Risks To Prompt Quicker Rate Hike Monetary Policy Framework TABLE: MONETARY POLICY FORECASTS Structural Fiscal Position TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES TABLE: FISCAL AND PUBLIC DEBT FORECASTS Currency Forecast CZK: Short- And Long-Term Appreciation Ahead TABLE: BMI CURRENCY FORECAST Chapter 2: 10-Year Forecast The Czech Economy To 2027 To Catch Up With Western Peers TABLE: LONG-TERM MACROECONOMIC FORECASTS Chapter 3: Political Outlook SWOT Analysis BMI Political Risk Index Domestic PoliticsANO-ČSSD Coalition Government Approaching Final Stages Long-Term Political Outlook Regional Anchor Of Stability Chapter 4: Operational Risk Operational Risk TABLE: OPERATIONAL RISK Business Crime TABLE: BUSINESS RESPONSE TO WHITE COLLAR CRIME AND ORGANISED CRIME Education TABLE: CZECH REPUBLIC & OECD AVERAGE STUDENT PERFORMANCE SCORES (2015) Chapter 5: BMI Global Macro Outlook Key Divergences Emerging In World Economy TABLE: GLOBAL MACROECONOMIC FORECASTS TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y TABLE: CZECH REPUBLIC – MACROECONOMIC DATA AND FORECASTS