The year 2024 finally brought growth to the Czech economy. However, it will be weak, as it will be only around 1 % in the final accounting. Next year will be slightly better in terms of GDP as we see a gradual acceleration in growth. The Czech economy will probably grow by 2.0 - 2.3 % in 2025. The current Czech government would certainly like to see a better economic outcome for the 2025 election year. But it will not come. In many areas of the Czech economy, things continue to fall apart.
Czech household spending will continue to support the Czech economy in the coming quarters. Their spending will slowly increase thanks to the fact that inflation is no longer running at a double-digit rate and Czech households are getting richer in real terms. This will also be true in 2025, when we are betting on real wage growth of around 3 %. The fact that the government will be handing out pre-election freebies ahead of the autumn parliamentary elections will also help to improve GDP. On the other hand, industry is reporting problems. A number of firms are seeing a decline in orders and are being affected by higher energy prices. Into this industry that is gasping for breath, various ESG requirements are making life difficult. This time, even foreign demand will not pull Czech industry out of the worst. Our biggest trading partner Germany has its own problems. Therefore, the growth of the Czech economy will continue to lag behind the values we were used to before 2020.
At the end of this year, Czech central bankers tried out what it was like to take a break from the process of cutting interest rates. The base rate (2-week repo rate) of the Czech National Bank (CNB) remained at 4 % during December. The reason was that consumer inflation had caught its second wind. Year-on-year, consumer prices rose by 2.8 % in November as in October. Thus, inflation is still at risk of hitting the upper limit of the CNB's tolerance band, which lies at the 3% level. The high benchmark base has been a significant help to restrain inflation in recent months. However, this will no longer be the case for energy prices, for example. In addition, we will see high growth in service prices, which are now rising by 5 % year-on-year. This will feed inflation. In addition, food has already ended its year-on-year decline. The brake on inflation in the form of year-on-year lower petrol and diesel prices will not save everything. Hence, we do not believe in inflation rates returning to the 2% target next year either. On the contrary, inflation should move above it again. We estimate that the average inflation rate will reach 2.6 % in 2025.
Czech central bankers will therefore be forced to cut interest rates only cautiously next year and certainly not at every meeting. In its autumn forecast, the CNB expected to cut interest rates by a full percentage point by next summer. In the end, however, interest rate cuts will probably be slower. Firms and households will therefore continue to wait in vain for a more pronounced reduction in the cost of credit. However, the still relatively high interest rate attractiveness of the koruna should keep the koruna afloat and prevent it from weakening more significantly. In a year's time, we expect the koruna to be close to CZK 25.00 to the euro.
The European Central Bank will have slightly different concerns next year. Many eurozone countries are not growing at all. That is why European Central Bank officials admit that the threat of long-term stagnation in the eurozone economy is now a bigger scare than a renewed rise in inflation. The European Central Bank will therefore continue to cut interest rates regularly and make financing cheaper for households, firms and countries. But this will go against the euro.
The US central bank, the Fed, on the other hand, wants to be very cautious with further interest rate cuts over the next year. The US economy continues to grow by roughly 3 %. In addition, the pace of inflation in the US is accelerating again. When Donald Trump returns to the White House in early 2025 and ramps up import tariffs, inflationary pressures in the US will have further reason to intensify. Over the next 12 months, the Fed is betting on a rate cut of just 50 basis points, when the market was expecting a 75 basis point drop. This will further strengthen the dollar against the euro.
But the slow credit cheapening is bad news for investors and stock markets. While the S&P 500 stock index will end this year up by more than a fifth, next year will not be so good. It won't just be the final result, but also the increase in the fickleness of each day. For with Donald Trump at the helm of the world's largest economy, there will be no shortage of boredom in the stock market world. There will be alternating days of euphoria and scepticism in the markets, for example, as Trump tightens and then loosens the screws in the trade war with China and other countries. At the same time, Trump is promising many more changes, for example, in the area of taxes or in the extraction of energy resources. Geopolitics or the cooling of the Chinese economy will also increase tensions in the markets.
In Slovakia, GDP growth will accelerate only slightly to 2.3 % next year. At the same time, the rate of price growth will step on the accelerator much more significantly. It is the backward acceleration of inflation that will dampen household purchasing power. For this reason, the Slovak economy will continue to grow at a subdued pace.
Jiří Cihlář, Markéta Šichtařová
Eurodeník 20. 12. 2024 Next Finamce s.r.o. Nextfinance.cz
AUDIO form can be found here
ILLUSTRATIVE PHOTO - pixabay
Czech 
English 
Spanish 
French 
Italian 
Russian 
Chinese 
German