Czech consumption likely to boom on rising wages and upbeat consumers’ sentiment

The manufacturing industry continues to mainly drive the Czech economic growth; however, most sectors of the economy are indicating a positive trend. On the demand side, consumption has grown, underpinned by the rising wages and upbeat consumers’ expectations.

Currently, any fundamental economic changes or reforms are unlikely due to the Autumn Parliamentary elections. According to a KBC Market research report, the progress in Czech Republic’s preparations for joining the euro area is unlikely in this electoral term either.

Meanwhile, the Czech National Bank continues to stick to its commitment to intervene against the CZK till the end of the first quarter of 2017. Even if one cannot exclude earlier exit, the base scenario of the end of the interventions at the third quarter of 2017 is likely.

“We assume the first interest rate hike to come not earlier than 6 month after the end of interventions”, added KBC Market Research.

Likelihood of negative rates is still not on the agenda for now. The central bank might theoretically adopt negative interest rates as a tactical tool to ease the requirement of the interventions.