Czech Republic: Rate hike possible at end-March

3 min
Manfred Stamer
Manfred Stamer Senior Economist for Emerging Europe and the Middle East

Q4 GDP growth accelerated to +3.2% y/y from +2.6% in Q3. This took growth for all of 2018 to +3% (down from +4.4% in 2017) which was entirely driven by domestic demand, a shift from the broad-based performance in 2017. Notably, fixed investment surged by +10.2% in 2018 (+3.7% in 2017) thanks to rising spending on machinery, infrastructure and housing. Consumer and public spending grew by +3.2% and +3.9% in 2018, respectively. The latter picked up to an average +5% y/y in H2, reflecting rising public sector wages and a shift to fiscal stimulus amid signs of an economic cooling at midyear. Export expansion slowed to +4.5% (+6.7% in 2017) while imports remained stable at +6%, so that net trade subtracted -0.8pp from 2018 growth (+1.1pp in 2017). Meanwhile, inflation picked up to 2.7% y/y in February, up from 2.5% in January and 2% at end-2018. Strengthening growth in Q4 combined with rising inflation have boosted the likelihood of a policy interest rate increase at end-March.