Czech Republic – Resilient to old risks, vulnerable to new

Here is an update on the Czech economy.

This economy has been seen as the safe haven or the Switzerland of Central and Eastern Europe. However, this was due to the resilience to the old risks of financial stability risks.

The economy is very vulnerable to the new risks!

 Here are the key points:

• The Czech economy is likely to be in a mild recession that we expect will end in Q1 this year.
• We now expect full-year growth this year just above zero. Risks are skewed to the downside due to the dependence on Euro-area demand growth.
• Financial stability concerns are generally falling and relative growth performance is becoming more important. Therefore, the Czech Republic is moving from being one of the least vulnerable to one of the most vulnerable.
• The next move from the central bank is likely to be a hike, although we are pushing the timing to the second half of 2013.
• The CZK is mirroring risk perception. Thus, it strengthened significantly vs the EUR during January. Still, the CZK is likely to be one of the worst performing emerging currencies this year.

Kind regards

Anders Svendsen

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