Country Economic Forecasts > Czech Republic

Although GDP growth surprised to the upside in Q2 at 0.9% q/q, the breakdown revealed the domestic sector disappointing, with private consumption barely rising and fixed investment plunging some 4.1% q/q. Although we expect a rebound in both of these in H2 and export growth to improve, we forecast GDP growth slowing to 0.5% q/q on average for the rest of 2016, leaving the whole year figure at a solid 2.4% versus an investment-fuelled 4.6% in 2015. Meanwhile, there were no changes in policy or communication at the CNB's September monetary policy meeting, except for emphasising that the exchange rate floor of CZK27/1 will be lifted after Q2. We expect the exit from the current policy to take place towards the end of 2017. Interest rates are likely to be kept on hold over the medium term, although further cuts are possible if strong capital inflows persist.