Czech economic growth likely to rebound slowly in H2 2020, inflation to slow down gradually

Czech economic growth is expected to deteriorate considerably in 2020. According to an Erste Group Research report, the GDP growth is likely to contract 7 percent, owing to the significant fall in investment expenditures and exports in the first half of 2020. From the third quarter of 2020, the development of Czech economy will gradually rebound, mainly due to rising domestic and foreign demand. Nevertheless, exports of procyclical goods are expected to rebound more slowly, which will in turn ease the pace of economic recovery in the second half of 2020.

“The Czech economy should grow by 4.5 percent next year, driven by all main components. This forecast is based on the assumption that the economy will start recovering at the turn of 2Q and 3Q this year”, stated Ertse Group Research.

Nevertheless, a more significant decline in 2020 is not ruled out given the high degree of uncertainty. If the situation around the coronavirus worsens again, GDP growth might be close to -11 percent in 2020 and 2 percent in 2021.

Meanwhile, inflation is expected to decelerate only gradually from its pre-crisis high levels, as the impacts of the soft koruna expansionary fiscal policy, and increasing food prices will ease the anti-inflationary effect of the crisis.

“We expect average inflation to be close to 3 percent this year. At the beginning of next year, inflation should weaken slightly below 2 percent and rise throughout a year, in line with the improving economic situation”, added Erste Group Research.