No rate cuts this year but more in 2024
25/07/2023 14:40:00Economic recovery in sight After a technical recession, the economy stagnated in 1H23. We expect economic growth to resume in 2H23 and 2024. Its main source should be growth in household consumption, supported by an increase in real wages and a reduction in excess savings. GDP is set to grow by 0.1% this year and by 1.8% next year.
Inflation to fall below 2% We expect inflation to remain around 8% yoy until year-end. Its steep fall at the start of next year will likely be driven by a sharp drop in energy prices and the government’s proposed VAT changes. We forecast inflation to reach 11% in 2023, slow to 1.3% in 2024 and rise slightly again to 2.2% in 2025. Core inflation should remain above 2%.
The CNB unlikely to adjust rates before year-end We expect the first rate cut in February next year vs September this year as in our previous forecast. But we think that the cuts will have to be faster next year, with the repo rate at 4% by end-2024.
Temporary pause in the rate decline trend The postponement of the start of the CNB’s monetary easing cycle should also shift the decline in market interest rates. The inverse shape of the curve is likely to be maintained throughout next year.
A weakening but still strong koruna The CNB’s policy, combined with a rapidly weakening US dollar, should keep depreciation pressures at bay. We expect the EURCZK 24.10 level to be reached in the next 12 months.