The Czech Banking Association (ČBA) has revised its forecast for the Czech economy’s growth this year to 1.8 percent. The ČBA forecasted a 3.7 percent growth in GDP this year in its previous forecast in February. Economic growth will be affected by the impact of the war in Ukraine, problems in supply chains, and inflation.
The association expects the economy to grow by 2.8 percent next year, compared with 3.6 percent in the previous forecast. Last year, the economy grew 3.3 percent.
Inflation is expected to rise by an average of 12.4 percent this year, according to new ČBA estimates. It warned that there are risks that could push inflation even higher this year and next.
“In particular, energy prices have risen appreciably for long-term contracts next year and beyond, which will pose further upside risks to inflation if the market situation does not calm down,” the association said. The association predicts 4.5 percent inflation next year.
According to the association’s estimates, due to the development of inflation, the ČNB is likely to raise interest rates in June. For the time being, estimates place the base interest rate at 6% by the end of this year. It is currently at 5.75 percent. By the end of next year, economists say the base rate could be at four percent.
The association predicts that the public deficit will be 4.9 percent of GDP this year, up from the February estimates. This is due to the costs associated with the war and other economic problems, despite surprisingly good state tax revenues. Last year, the government’s deficit was 5.9 percent.
The ČBA publishes a forecast on a regular quarterly basis based on contributions from analysts at domestic banks.