In a crisis scenario that envisages a longer period of completely interrupted gas and oil supplies from Russia, the Czech economy would fall into recession in the second half of this year. Its full-year growth could be in the range of one to two percent, pictures Komerční banka analyst Jan Vejmělek . He added, however, that he considered this scenario unlikely.
Next year, according to him, the Czech Republic’s gross domestic product (GDP) could fall by a few percent instead of the estimated growth of 2.7 percent. Due to higher energy prices and also the weaker Czech koruna, inflation would average around 11 percent this year.
Under the baseline scenario, which assumes uninterrupted supplies of energy raw materials from Russia, KB reduced the expected growth of the Czech economy this year by more than a percentage point to 3.8 percent. Next year, the bank’s forecast assumes a slowdown in economic growth to 2.7 percent, assuming more tight monetary conditions. “Inflation should be higher, we expect it to be 9.3 percent on average this year. It will remain above ten percent practically throughout the first half of the year, which it probably reached in February,” Vejmělek warned.
According to Vejmělek, the effects of the conflict on the domestic economy go simply through two channels, through the real economy, ie through exports and imports, and through the financial markets. Russia is not a key export market for the Czech Republic, after the annexation of Crimea and subsequent sanctions, there was a significant decline from the local markets, in 2021 the share of domestic exports to Russia was less than two percent
Russia is a much more important partner for the Czech Republic on the import side, which is especially true for energy raw materials. “The problem for us is especially gas, where we take almost 80 percent of all imported gas directly from Russia,” he said.
For energy raw materials sourced from Russia, both the possibility of supply disruptions and the price effects of the current crisis are at risk. The rise in energy prices will further pour into the fire of the current high-inflation environment. And data from the end of the year already showed that inflation is affecting Czech households and reducing their purchasing power, he said.
The financial markets channel is mainly reflected in the weakening of the domestic currency. It is losing not only against the euro, but even more so against the dollar, for which many commodities are imported. This is another important pro-inflationary factor, the analyst concluded.
Source: Jan Vejmělek – Komerční banka and CTK
