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Czech Republic Country Risk Report Q3 2018

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 Politics
ANO-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

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