Czech Republic: Elections Brought Forward to October

Consensus Forecasts

A little confidence in the recovery has emerged after the PMI manufacturing indicator surged to 53.9 for August and revised estimates confirmed the Q2 GDP expansion of 0.6% (q-o-q). However, the economy is fragile, constrained by weak domestic and euro zone demand. In addition, most panellists hold a dim view on outlook for industrial production, with the full-year 2013 and 2014 consensus forecasts further downgraded. In year-on-year terms, GDP remained in negative territory at -1.3% in Q2 (the last time it was positive was nearly two years ago), while inflation was 1.3% (y-o-y) in August, just above the lower boundary set by the National Bank. These developments have raised calls for an increase in monetary easing, although the scope for manoeuvre is limited, with interest rates already held at effectively zero (0.05%) in order to aid recovery.

Elections have been announced for October 25 and 26, seven months ahead of schedule after the government lost a vote of confidence earlier in the year. It is hoped that by bringing the vote for change forward, a semblance of stability can be restored to politics, tarnished by a series of corruption scandals. A reduction in political uncertainty should allow the focus to be shifted to reforms and spurring foreign investment.

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