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Czech Republic Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views

Economic growth in the Czech Republic will stay strong in the comingyears and amount to 3.4% in 2016 and 3.2% in 2017.The largest contributor to GDP growth will continue be private consumption(1.4 percentage points in 2016). Strong wage growth willcontinue to underpin private consumption's share of the economy.We are forecasting the budget deficit will stay under 2.0% of GDPin 2016 and 2017 and overall government debt will fall below 45.0%of GDP in the coming years.The Czech Republic's trade surplus will swell to 8.0% of GDP in2016 and the country's current account will stay relatively balancedin the years ahead.Stronger inflation will return to the Czech Republic in 2016, for whenwe forecast price growth to accelerate to the central bank's targetof 2.0%.We expect the Czech National Bank to keep interest rates at 0.05%and leave the koruna cap of CZK27.00/EUR in place in 2016.Major Forecast

ChangesWe adjusted our GDP growth forecasts for the Czech Republicslightly downwards for 2016 and 2017, due to rising import receipts,as households are increasingly demanding higher value goods fromabroad. We expect the economy to expand by 3.4% in 2016 (insteadof 4.0%) and by 3.2% in 2017 (instead of 3.8%).

Table Of Contents

Czech Republic Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Migrant Crisis To Shift Centre Ground Rightwards8
The Czech Republic will continue to act as an anchor of political stability in central Europe, though its dispute with the EU over refugee
reallocation will increase tensions Strong economic growth and an expansionary fiscal policy will give the coalition government
continued public support
TABLE: POLITICAL OVERVIEW8
Long-Term Political Outlook 10
Further Western Integration Ahead10
The Czech Republic will remain the most developed CEE state over the next ten years, with per capita income set to overtake some
of the EU-15 member states by the early 2020s The country will face some key challenges, namely fiscal pressures from an ageing
population, relations between Czechs and immigrant minority groups, and potential ructions with Brussels Nevertheless, the Czech
Republic will remain among the most politically, socially and economically stable countries in Europe through the next decade
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Index 15
Economic Growth Outlook 16
Manufacturing To Boost Growth16
Even after adjusting our 2016 and 2017 forecasts for the Czech Republic's real GDP growth slightly lower, we remain bullish on the
country's economic outlook in the years ahead The manufacturing and automobile sectors will continue to benefit from recovering
eurozone demand and rising consumer confidence domestically
GDP By Expenditure Outlook 18
TABLE: 10-YEAR GDP FORECAST18
TABLE: PRIVATE CONSUMPTION FORECASTS18
TABLE: GOVERNMENT CONSUMPTION FORECASTS18
TABLE: FIXED INVESTMENT FORECASTS18
TABLE: NET EXPORTS FORECASTS19
Monetary Policy 19
Inflationary Pressures To Return In 201619
The Czech National Bank will continue to keep interest rates at historic ally low levels of just 005% in 2016 and 2017, as any premature
hike would put upward pressure on the CZK270/EUR cap We expect inflationary pressures to rise and reach the central bank's target
of 20 % in 2016
Monetary Policy Framework 19
Fiscal Policy And Public Debt Outlook 21
Deleveraging To Start In 201621
While public expenditure growth in the Czech Republic will remain high in 2016 and 2017, strong economic expansion and low debtservicing
costs will keep the budget deficit low and facilitate a reduction in the shortfall We forecast the country's public debt to fall from
451% of GDP in 2015 to 446% of GDP in 2016
Structural Fiscal Position 22
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES22
TABLE: FISCAL POLICY23
External Trade And Investment Outlook 24
Exports To Keep C/A In Surplus24
The Czech Republic's current account will register small surpluses in the years ahead due to a rapidly expanding export sector, which
is benefitting from the eurozone upswing Although the recent Volkswagen emissions scandal will pose a threat the Czech automobile
sector, we expect the country's export machine to stay on its strong growth path
Outlook On External Position 26
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE26
TABLE: TOP 5 IMPORTS IN 201427
TABLE: TOP 5 EXPORTS IN 201427
Currency Forecast 27
Koruna Cap To Stay, Inflation Accelerating in 201627
The Czech National Bank will leave the koruna cap in place and interest rates at historic low levels of 005% in 2016 The Czech
currency will continue to face minimal appreciatory pressure until at least 2017, limiting the pressure on the currency cap
TABLE: BMI CURRENCY FORECAST28
Chapter 3: 10-Year Forecast 31
The Czech Economy To 2024 31
Effective Convergence31
The Czech Republic is forecast to remain a positive convergence story through the coming 10 years, despite the severe adverse
impact of the 2008-2009 global recession, with the eurozone accession policy anchor contributing to steady progress in a long-term
government reform agenda, despite a target for accession yet to be decided
TABLE: LONG-TERM MACROECONOMIC FORECASTS31
Chapter 4: Operational Risk 33
SWOT Analysis 33
Operational Risk Index 33
Operational Risk 34
TABLE: OPERATIONAL RISK34
Education 35
TABLE: EUROPE - EDUCATION 36
TABLE: GRADUATES OF TERTIARY EDUCATION ('000), 2002-201238
Government Intervention 39
TABLE: EUROPE - GOVERNMENT INTERVENTION RISK40
Chapter 5: BMI Global Macro Outlook 45
Global Outlook 45
Emerging Markets Bending, Not Breaking45
TABLE: GLOBAL ASSUMPTIONS45
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %46
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 46
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %47

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