Czech investment activity likely to deteriorate in 2016

Investment activity in the Czech Republic is likely to deteriorate in 2016 because of the decline in EU co-financing. Moreover, uncertainty surrounding the economic development in the EU post Brexit is expected to weigh in long-term investment activity and short-term investment activity as well. Therefore the potential growth of Czech economy is expected to decelerate, said Societe Generale in a research report. Last year, the economic growth was mainly driven by investment activity.

Meanwhile, in the recent months, the jobless rate has stopped falling as the economy slows. But the rate has neared the historic lows of 2009, as the pool of skilled workers has been reducing, leading to an upward pressure in wages. This is likely to be seen in the higher consumer spending. However, the uncertainty post-Brexit is quite likely to decelerate the consumption growth.

Price growth is likely to surpass just 1 percent by the end of 2016. Strong core inflation and the low base of comparison established in 2016 should lead to an acceleration of inflation by the end of 2017 with it reaching the two percent target by the third quarter of 2017, according to Societe Generale.

The Czech National Bank forecasts the end of the EUR/CZK floor in mid-2017. But the Brexit vote has raised the threat of the floor being scrapped at a later stage in 2018, added Societe Generale.