Czech economic growth driven by strong household consumption, GDP likely to grow 2.7 pct in 2017

Foreign and domestic demand is underpinning the Czech economic growth. According to an Erste Group Research, the GDP growth is expected to come in at 2.7 percent, a rise from around 2.4 percent anticipated for 2016. Strong and stable household consumption is mainly driving the GDP growth, adding around 1.4 percentage points. Furthermore, the contribution of investment expenditures would be positive next year as both public and private investment would rise, stated Erste Group Research.

In 2016, investment dropped in year-on-year terms because of the extraordinary volume seen in 2015. Moreover, as there would be parliamentary elections in autumn 2017, fiscal policy would stay expansive. Foreign demand for Czech exports stays favourably, and is mainly underpinned by Germany’s economic development. But in 2017, the exit from  the FX cap and impacts of Brexit would lower the contribution of foreign demand, which would arrive at around 0.3 percentage points.

“For 2018, we expect an improvement in the foreign demand development, which will contribute 0.6pp to the GDP growth (3.2%)”, said Erste Group Research.

Meanwhile, headline inflation came in at 2 percent in December and therefore reached the target. This figure is seen as a considerable inflation surprise, mainly driven by food and energy prices, solid domestic demand and wage growth. This year, inflation is expected to accelerate slightly, mainly because of domestic demand and reach around 2.3 percent in mid-2017, added Erste Group Research. The high inflation increases the possibilities of an earlier exit and has set of massive inflow of foreign capital.