Banking Association expects economic stagnation this year, GDP to grow by 0.1%

Banking Association expects economic stagnation this year, GDP to grow by 0.1%

Banking Association expects economic stagnation this year, GDP to grow by 0.1%

Money, banknotes, Czech currency, koruna, savings – illustration photo.

Prague – The Czech Banking Association (ČBA) expects economic stagnation this year, with gross domestic product growing by 0.1 percent. The Czechia should return to economic growth next year, when the economy will grow by 2.7 percent. This follows from the new macroeconomic forecast presented by CBA. The association is more optimistic than the Ministry of Finance and the Czech National Bank (ČNB), which expect an economic downturn this year. The CBA forecast also assumes a reduction in annual inflation to 10.8 percent from last year's 15.1 percent and an increase in unemployment to four percent from last year's 3.4 percent.

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The Czechia entered recession at the end of last year, and CBA expects the economy to decline quarter-on-quarter in the first quarter of this year as well. Recovery should come from the second quarter, but for the whole year GDP will grow by only 0.1 percent. According to the ČBA, this will cause a significant drop in the consumption of households, which are facing a drop in real wages due to high inflation.

Banking Association expects economic stagnation this year, GDP to grow by 0.1%

CBA warned that this year will be difficult for households and companies and burdened with a number of risks. “Foreign prospects improved slightly at the end of the year, and some risks associated with, for example, energy prices seem to be temporarily less favorable for economic activity. However, a whole range of risks for the global economy remain, which is due to the ongoing war conflict in Ukraine. In addition, a noticeable drop in industrial production in Germany at the end of last year reminded that fears about the recession of our main trading partner are still justified,” said CBA chief economist Jakub Seidler.

The Czechia will continue to struggle with inflation, which according to the association will fall more slowly than has been assumed so far. At the end of the year, it should decrease to 7.7 percent, while back in November, CBA expected that year-on-year inflation would be 5.2 percent at the end of this year. Next year, according to the forecast, inflation should reach 3.2 percent for the whole year, and it will not fall to the equilibrium level of two percent until the end of 2024.

According to the association's forecast, the basic interest rate of the CNB is at its peak and will not exceed seven percent, where it has been since last June. However, the forecast assumes a slower rate reduction, at the end of this year it should be at six percent. “Banking economists are unanimous that the CNB will start easing monetary policy this year. However, they are moving the center of gravity of the expected rate cut to 2024,” said UniCredit Bank Chief Economist Pavel Sobíšek.

According to the CBA forecast, the mild recession at the turn of the year will have only a weak effect on the labor market. According to the association, employers want to retain the workforce despite economic difficulties because past experience has shown how difficult it is to get suitable workers back. The forecast expects unemployment to rise to four percent this year, and fall to 3.8 percent next year.

According to CBA, public finance debt will be 4.1 percent of GDP this year and three percent of GDP next year. However, the high budget deficits will only slightly increase the state's total indebtedness, because GDP also increases in nominal terms due to high inflation. This year, indebtedness should thus reach 44.1 percent of GDP, next year 45.3 percent of GDP.

The dynamics of loans continue to be affected by an uncertain economic environment and increased interest rates. The mortgage market probably does not expect a significant recovery, and due to the strong first half of last year, its year-on-year decline will continue. Consumer loans will stagnate.

ČBA publishes a prediction regularly once a quarter based on the contributions of domestic bank analysts.

In its January forecast, the Ministry of Finance expects GDP to fall by 0.5 percent this year, and according to it, inflation will reach 10.4 percent for the whole year. The CNB published its forecast last week, expecting GDP to fall by 0.3 percent this year and grow by 2.2 percent next year. According to the central bank, the average inflation this year will be 10.8 percent, next year it is expected to be 2.1 percent.

< td>2022

Indicator 2023 (prediction) 2024 (prediction)
Real GDP growth (in pct.) 2.5 0.1 2.7
Growth in household consumption (in pct.) -0.7 -2.2 2.5
Growth in government consumption (in pct.) 0.3 0.8 1.3
Investment growth (without stocks, in pct.) 5.4 1.2 3.2
Growth in exports (in pct.) 5< /td>

2.8 5.2
Growth in imports (in pct.) 4.7 1.5 4.6
Inflation rate average (in pct.) 15.1 10.8 3.2
Inflation rate at the end of the year (in pct .) 15.8 7.7 2.4
Unemployment average (in pct.) 3.4 4 3.8
Average nominal wage (growth in pct.) 6.7 7.8 5.6
Government management (in percent of GDP) -3.6 -4.1 -3
Government debt (in percent of GDP) 44.6 44.1 45.3
CNB 2T REPO base rate at the end of the year (in pct.) 7 6 3, 5
3M-PRIBOR average (in pct.) 6.28 6.92 4.8
ECB base rate at the end of the year (in pct.) 2.25 4 3.13
CZK/EUR exchange rate average 24.57 24.20 24.30
CZK/EUR exchange rate at the end of the year 24.28 24.20 24.20
Real GDP growth in the Eurozone (in pct.) 3.3 0, 3 1.5
Brent oil prices average (USD per barrel) 100 85 82
Growth in client bank loans (in pct.) 5.7 4, 1 5.2
Growth in bank loans to households (in pct.) 8.3 4 5,7

Source: CBA