8/3/2019 Vyhldky a vvoj esk ekonomiky BNP Paribas (dokument v AJ)

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This section is classified as non-objective research

Michal Dybula, Dina Ahmad October 2011

EM Outlook 50 www.GlobalMarkets.bnpparibas.com

Czech Republic: 0.75% Not Low Enough

Activity: tough times ahead

The Czech economy is becoming a victim of itslow external and public debt, as well as its strongfiscal and current account performance: while itssafe-haven status in Central Europe is keepingits risk premium low, it is also leading to currencystrength.

This is bad news for exports, since externaldemand is falling sharply, and for overall growth,as the domestic economy will remain depresseddue to the ongoing sharp fiscal tightening.

We expect GDP growth to slow to around 1.2%next year, but we are relatively upbeat about the

longer-term prospects for the Czech economy.

Once the fiscal adjustment is complete, around2013 according to our forecast, tighteningmeasures will no longer strangle aggregatedemand, and economic growth will accelerateswiftly.

Inflation: what inflation?

Unsurprisingly, a wide output gap and strongkoruna mean there is no inflation pressure at all.The planned harmonisation of VAT rates nextyear will temporarily boost CPI and corereadings, but inflation will still remain very low.

Although the scope for policy rate cuts iscertainly limited given its current level of a mere0.75%, we expect the CNB to deliver 25bp ofconventional monetary easing in Q1 2012.

Non-orthodox measures later in 2012 cannot beruled out, especially if growth fails to recoverswiftly or the appreciation trend of the korunaaccelerates.

FX and rates: safe-haven play

We expect the koruna to remain supported in thecoming quarter as it is likely to remain a

defensive play for the region. However, wewouldnt rule out some weakening as rate-cutexpectations begin to intensify in the comingmonths.

The front end of the Czech IRS curve should befurther boosted by an expected shift from theCNB towards a more dovish tone and clearerindications of future cuts in rates.

Front-end receivers in the Czech Republicshould perform well; we prefer to receive thespread in 1y1y rates between the CzechRepublic and the eurozone.

Chart 1: Slump in Exports Expected

Source: Reuters EcoWin Pro

Expectations for exports are in free fall as external demand isdwindling and the koruna remains strong. In light of the domesticeconomys weakness, the slowdown in exports will hit GDP growthseverely.

Chart 2: VAT Hike Will Prevent Deflation in 2012

Source: Reuters EcoWin Pro

If it had not been for the VAT harmonisation, which according to theCNB may add 1pp to inflation, we would be forecasting core deflation

in the Czech Republic next year.

Chart 3: CZK is Regional Out-Performer(1/6/2011 = 100)

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107

109

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115

01/06/11 01/07/11 01/08/11 01/09/11

EURPLN

EURHUF

EURCZK

Source: Reuters EcoWin Pro, BNP Paribas

8/3/2019 Vyhldky a vvoj esk ekonomiky BNP Paribas (dokument v AJ)

2/2

This section is classified as non-objective research

Michal Dybula, Dina Ahmad October 2011

EM Outlook 51 www.GlobalMarkets.bnpparibas.com

Czech Republic: Economic & Financial Forecasts

09 10 11(1)

12(1)

13(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3(1)

Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

Components of Growth

GDP (% q/q) - - - - - 0.8 0.6 0.8 0.5 0.9 0.1 0.1 0.1 0.3 0.5 0.7 0.8

GDP -4.0 2.2 2.0 1.2 3.2 1.2 2.3 2.6 2.7 2.8 2.2 1.8 1.4 0.7 0.8 1.5 1.8Final Domestic Demand -1.8 -0.8 0.6 0.5 2.7 -1.6 -1.1 -0.2 -0.3 0.5 0.3 0.7 0.9 0.3 0.5 0.6 0.6

Private Consumption -0.1 0.1 -0.3 -0.3 2.6 -0.1 -0.1 -0.1 0.6 -0.3 -0.6 -0.2 -0.1 -0.7 -0.3 -0.2 -0.2

Public Consumption 2.6 -0.1 -0.6 0.3 0.8 2.4 0.8 -0.8 -2.6 -1.1 -1.4 0.0 0.2 0.3 0.5 0.3 0.1

Fixed Investment -7.9 -3.1 3.2 2.1 4.1 -7.7 -4.5 0.0 -0.1 3.4 3.6 2.9 3.0 2.0 1.6 2.3 2.6

Stocks (Cont. to Growth, y/y) -2.5 2.1 0.2 -0.1 0.4 0.0 1.9 4.2 2.5 0.1 0.5 0.1 -0.1 -0.3 -0.2 0.0 0.2

Exports -10.9 17.9 10.8 7.9 10.0 18.6 19.5 16.5 16.8 15.1 9.7 10.6 7.8 6.7 5.7 9.1 10.3

Imports -10.3 17.6 8.9 6.4 9.6 15.4 18.5 19.2 17.4 12.6 7.8 8.7 6.5 5.1 4.5 7.4 8.5

Industrial Production -13.2 10.2 7.8 3.5 5.1 6.7 11.7 10.7 11.9 12.5 9.1 5.7 4.0 2.6 2.4 3.8 5.3

09 10 11(1)

12(1)

13(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3(1)

Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

Inflation & Labour

CPI 1.1 1.5 1.7 2.0 1.4 0.7 1.2 2.0 2.3 1.7 1.8 1.7 1.6 2.5 2.2 1.8 1.5

Core CPI -0.6 -0.4 0.7 1.0 0.3 -1.0 -0.8 0.1 0.3 0.6 0.9 0.7 0.5 1.3 1.0 0.8 0.7Employment -5.5 -1.6 0.1 -1.0 -0.1 -4.1 -1.6 -0.3 -0.5 0.1 0.0 0.0 0.1 -0.6 -1.1 -1.5 -1.0

Wages 3.3 1.9 3.1 4.3 4.6 2.6 2.7 1.9 0.6 2.1 2.5 4.0 3.9 4.0 4.0 4.7 4.5

ULC -0.5 -0.8 0.7 0.4 0.1 -0.9 -0.7 -0.2 -1.5 0.4 0.6 0.7 1.2 0.6 0.3 0.3 0.3

Unemployment Rate (%) 8.1 9.0 8.7 8.8 8.7 9.8 8.8 8.6 8.9 9.5 8.3 8.4 8.7 9.4 8.4 8.6 9.0

09 10 11(1)

12(1)

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Q1 Q2 Q3 Q4 Q1 Q2 Q3(1)

Q4(1)

Q1(1)

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Q3(1)

Q4(1)

External Trade

Trade Balance (EUR bn) 3.34 2.11 2.57 3.76 4.39 1.22 0.89 -0.18 0.18 1.39 1.02 -0.23 0.38 1.30 1.30 0.23 0.93

Current Account (EUR bn) -3.49 -4.69 -5.48 -3.71 -3.25 0.55 -1.07 -3.54 -0.63 0.87 -2.05 -3.51 -0.79 1.08 -1.17 -3.23 -0.38

Current Account (% of GDP) -2.5 -3.2 -3.6 -2.3 -1.9 1.6 -3.1 -9.7 -1.7 2.3 -5.7 -8.9 -2.0 2.7 -3.1 -8.0 -0.9

09 10 11(1)

12(1)

13(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Financial Variables

Gen. Gov. Budget (CZK bn) -212 -171 -159 -138 -118 - - - - - - - - - - - -

Gen. Gov. Budget (% GDP) -5.8 -4.7 -4.2 -3.6 -2.9 - - - - - - - - - - - -

Primary Budget (% GDP) -4.5 -3.3 -2.8 -2.2 -1.5 - - - - - - - - - - - -

Gen. Gov. Debt (% GDP) 35.3 38.5 41.7 44.1 45.3 - - - - - - - - - - - -

09 10 11(1)

12(1)

13(1)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4(1)

Q1(1)

Q2(1)

Q3(1)

Q4(1)

Interest Rates & Bonds(2)

Policy Rate (%) 1.00 0.75 0.75 0.50 0.50 1.00 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.50 0.50 0.50 0.50

3-Month Rate (%) 1.54 1.22 1.15 0.90 0.90 1.44 1.23 1.21 1.22 1.23 1.18 1.15 1.15 0.90 0.90 0.90 0.90

2-Year Bond (%) 1.88 1.82 1.20 1.15 1.45 1.30 1.88 1.74 1.82 1.76 1.48 1.40 1.20 1.05 1.00 1.10 1.15

5-Year Bond (%) 3.31 3.18 1.85 2.10 2.15 3.01 2.85 2.62 3.18 3.15 2.74 2.01 1.85 1.75 1.70 1.90 2.10

10-Year Bond (%) 4.04 3.95 3.12 3.20 3.25 4.02 4.17 3.42 3.95 4.06 3.84 3.22 3.12 3.01 2.95 3.10 3.20

Spread over Bund (bp) 66 99 112 20 0 92 159 116 99 71 83 155 112 76 45 35 20

Interest Rate Swaps(2)

2-Year Swap (%) 2.39 1.95 1.20 1.15 1.45 2.30 1.76 1.70 1.95 2.24 2.10 1.40 1.20 1.05 1.00 1.10 1.15

5-Year Swap (%) 3.15 2.43 1.55 1.80 1.85 3.06 2.42 2.18 2.43 2.87 2.68 1.72 1.55 1.45 1.40 1.60 1.80

10-Year Swap (%) 3.60 2.90 2.10 2.30 2.45 3.57 3.03 2.68 2.90 3.32 3.17 2.20 2.10 2.01 2.00 2.15 2.30

FX Rates(2)

EURCZK 26.32 25.00 25.00 23.50 23.30 25.37 25.68 24.58 25.00 24.52 24.28 24.40 25.00 24.30 24.10 23.80 23.50

USDCZK 18.38 18.67 17.24 15.88 16.64 18.80 20.99 17.95 18.67 17.31 16.75 17.68 17.24 16.42 16.07 15.87 15.88

Footnotes: (1) Forecast (2) End period

Figures are year-on-year percentage changes unless otherwise indicated

2010 2011 2012

2010 2011 2012

2010 2011 2012

2010 2011 2012

2010 2011 2012

Year

Year

Year

Year

Year

Source: BNP Paribas