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Czech Republic Country Risk Report Q4 2018

Czech Republic Country Risk Report Q4 2018

Key View:

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, underpinning the country's robust sovereign profile.

Although the Babis 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 eurosceptic peers in Poland and Hungary, raising tensions with the EU.

After becoming the first CEE central bank to hike interest rates in 2017 on account of rising inflation, the Czech National Bank will continue a relatively aggres-sive rate hiking cycle in 2018, supporting further koruna appreciation.

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.

Key Risks

Wage rises and increasing labour unit costs will erode the Czech Republic's cost advantage over its more developed regional peers, such as Austria and Germany, in the medium term.

Emerging political risks in the eurozone on account of Italy's populist government may have negative consequence for the recovery in fixed investments.

Further and more substantial EM FX volatility is possible.


Executive Summary
Core Views
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic – SWOT Analysis
Political – SWOT Analysis
Economic Outlook
Economic Growth Outlook
Czech Growth To Remain Robust Despite Q2 Slump
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 Czech Current Account To Remain In Surplus
Outlook On External Position
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 IMPORTS IN 2017
TABLE: TOP 5 EXPORTS IN 2017
Monetary Policy
No End Of Czech Rate Hiking Cycle In Sight
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Czech Republic Country Risk Q4 2018ContentsCurrency Forecast
CZK: EM Sell-Off Will Delay But Will Not Stop CZK Appreciation
TABLE: CURRENCY FORECAST
10-Year Forecast
The Czech Economy To 2027
To Catch Up With Western Peers
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Reinstatement Of ANO-ČSSD Coalition Government To Portend Broad Policy Continuity
Long-Term Political Outlook
To Stay Regional Anchor Of Stability
Global Macro Outlook
Strong Growth, But Greater Headwinds Too
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: CZECH REPUBLIC – MACROECONOMIC DATA AND FORECASTS

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