CNB Optimistic: Adjusts GDP Forecast Upward

Czech Economy

Prague, May 3 (CTK) – The Czech National Bank (CNB) improved its gross domestic product (GDP) growth estimate to 3.9 percent for this year and 3.4 percent for the next in its latest forecast, CNB governor Jiri Rusnok said at a press conference after the CNB Bank Board meeting today.


In its previous forecast published in February, the central bank envisaged 3.6 percent for 2018 and 3.2 percent for 2019.


The CNB lowered its inflation rate estimate for the second quarter of 2019 to 1.7 percent, projecting 1.8 percent in February, and it left its Q3 2019 inflation estimate at 1.8 percent.


The recent drop in inflation below the CNB’s 2 percent target reflected last year’s one-off factors fading and a drop in import prices, Rusnok said.


Domestic inflationary pressures remain strong, however, they will fade, he added.


Inflation will stay below the target this year but it will return close to 2 percent at the monetary policy horizon (about 12-18 months ahead), Rusnok said.


Inflation can be affected by the strength and structure of domestic inflationary pressures, the Czech crown’s development, and development abroad.


The central bank expects that the crown’s average exchange rate will be Kc25/EUR this year and Kc24.40/EUR next year, envisaging Kc24.90/EUR and Kc24.50/EUR in February, respectively.


The crown firmed beyond Kc25.50/EUR after the central bank’s meeting.


“Just as after the last forecast release, we think that the crown will strengthen less than the central bank expects, especially since the CNB is more cautious about raising interest rates further,” ING chief economist Jakub Seidler said.


However, if the economy continues its positive development, the combination of household consumption driven by wage growth, and the crown firming at a slower pace should make it possible for the interest rates to rise twice in the second half of this year, he added.


The Finance Ministry upgraded its GDP growth to 3.6 percent for 2018 and 3.3 percent for 2019 in its April forecast.


Last week, the Czech Banking Association improved its estimate of economic expansion to 3.6 percent for 2018 and 2.8 percent for 2019.


The Czech economy will grow by 3.4 percent this year and by 3.1 percent next year, according to today’s forecast of the European Commission.