Once the restrictive measures were eased in the spring economic growth very quickly collided against the barrier of a shortage of inputs into manufacture and limited human resources. The weakened supply side is facing strong demand, underpinned during the pandemic by the extremely relaxed economic policies. The result is a significant growth of prices across the consumer basket; it is dramatic in the case of industrial producers’ prices, in particular those of energy. The surging prices have caused a sharp turn of the helm in the monetary policy. The CNB will continue with its steep rate hikes.

This year, the Czech economy will grow at a rate of 1.9% following last year’s pandemic recession that caused the real GDP to fall by 5.8%. Compared with our preceding forecast, this is a significant downward revision from the originally expected 4.2%. In 2022, the Czech economy is expected to grow by 3.5%. “The pre-pandemic level will be achieved approximately three quarters later, i.e. in the second half of 2022,” Jan Vejmělek, Komerční banka’s Chief Economist, observes on the impact of the changes in forecasts. The shortage of components for production is a global problem and it has resulted in the downward revision of economic growth for the second half of this year in, for example, the US, and also in the euro area. “We firmly believe that this will be only a temporary problem that will subside during next year,” clarifies Jana Steckerová, Komerční banka’s economist.

The developments in the Czech economy resemble a rollercoaster ride. The covid lockdown in spring was replaced with euphoria from the lifting of measures, which turned into something like a headache during the summer because, in the better case, of the dramatic increase in the cost of energy and feedstock for production; in the worse case, sometimes there is nothing to manufacture from. “Although industry did make up for its covid plunge as early as the end of last year, it has since been basically stagnant only,” Michal Brožka, Komerční banka’s macroeconomist, assesses the situation in industry. The acute shortage of components, primarily in industry and construction, means that economic growth basically came to a halt during the third quarter. “If the Czech economy grows at least a little in the second half of this year it will be mainly thanks to household consumption, while a more significant expansion of capital expenditure is being postponed to 2022 and external trade is hampering the economy,” adds Michal Brožka.

The prices of virtually everything are surging for reasons on both the supply and demand sides. Because of the pandemic during 2020, the limited production and the reductions of inventories and orders collided with demand, which basically did not weaken despite the pandemic thanks to the extremely easy monetary and fiscal policies. The specificities in the energy and automotive sectors, which are related to the green transition policy, should be added to this. Thus, inflation has staged a comeback. The current growth of consumer prices is the largest since 2008; in the case of core inflation it even is the largest in the history of the time series. “We have raised our forecast of this year’s inflation to 3.6% from the original 2.8%, and it will be even higher next year. We expect to see it at 4.8% on average,” notes Michal Brožka.

In the light of this high inflation the CNB is quickly returning to the normal as regard its interest rates. The September hike of the key repo rate by 75 bp was the largest ever. “We expect that the CNB will continue in its brisk rate hikes. The central bank’s key rate should therefore climb to 3% relatively quickly. It will prefer the fight against inflation, which our forecast sees increasing and then peaking at around 6% in the first half of next year,” Martin Gürtler, Komerční banka’s economist, evaluates the monetary policy.

This year’s results of public finance will be better than the approved national budget. Komerční banka’s forecast presented in April is gradually coming true, and so its new version contains only a few cosmetic changes. The national budget is heading towards a deficit of CZK 400 billion this year and because of the slower investment activity at the end of this year, the resulting figure may even be slightly smaller. “Although the speed at which the national budget deficit is being deepened increased again in September the result continues to be much better than the Finance Ministry’s plan,” František Táborský, Komerční banka’s strategist, appraises the performance of government finance.

The koruna’s appreciation to the euro will slow down. We consider that the rising market interest rates and the development of the US dollar will continue to be the main factors for the koruna’s direction. “However, these factors will act against each other to a considerable extent. We expect the koruna to strengthen at a slower pace than in the first half of this year. At the end of this year, it will post CZK/EUR 25.10, hitting 24.80 next year,” František Táborský forecasts.

Macroeconomic forecast








GDP (real growth, yoy in %)




Household consumption (real growth, yoy in %)




Fixed investment (real growth, yoy in %)




External trade balance (CZK bn) (*)




Industrial production (real growth, yoy)




Retail sales (real growth, yoy in %)




Wages (nominal growth, yoy in %)




Unemployment rate (MPSV, in %)




Inflation (yoy in %)




3M PRIBOR (average)




2W Repo (average)




CZK/EUR (average)




Source: CSO, CNB, Ministry of Labour and Social Affairs, Macrobond, Economic and Strategic Research, Komerční banka

Jan Vejmělek
Chief Economist, Komerční banka
tel.: +420 222 008 568