In 1Q23, we believe the Czech economy may have ended a soft recession, given the previous QoQ decline of 2H22 turned into stagnation but remained still negative in YoY terms (-0.4%). We expect the annual growth of GDP to remain negative in the first half of 2023.
This reflects a continued decline in household consumption, which fell deeply by 6.4% YoY, following a sharp decline in the inflation-driven fall of purchasing power of households, while corporates cut their investment on the back of weak foreign demand and high costs of lending.
On a positive note, inflation is on a declining trend owing to an ongoing decline in core inflation, given a slowdown of food and fuel prices.
This is likely to prevent the CNB from increasing interest rates despite the still tight labour market and the risk of a potential wage-inflation spiral.
