CZ: We are likely to lower the GDP forecast

Industrial production in the Czech Republic declined by 1.1% month-on-month in September. As in previous months, weak demand from Germany and significant volatility in month-on-month data contributed to this. Today's figures are more favorable than our estimates, as we had anticipated a stronger negative impact from the recent floods. However, a potential downward revision of the data cannot be ruled out. On a year-on-year basis, output was positive for the second consecutive month, rising by 0.8%. This increase was partly due to a low comparative base.

We are currently updating our forecast, which will also be influenced by the results of the US elections. Donald Trump's victory and his plans to introduce tariffs on foreign trade and other measures are expected to result in lower growth in Czech GDP and industrial production. Uncertainty remains high as detailed information on the new US President's economic plans is not yet available.

Next year, economic developments in Germany are anticipated to improve. The German economy has been roughly stagnant this year, with GDP growth expected to be slightly below 1% next year. While this should benefit Czech exports, the expected growth in Germany has been revised downwards from the previous estimate.

Thus, as a result, it is highly likely that we will revise the GDP growth forecast for the Czech economy for 2025 downwards, primarily due to the expected lower growth in the German economy. In our recent (September) forecast, we expect 2.7%; however, current data and information suggest a range of 2.0% to 2.4%, depending also on the actions of Donald Trump.

The impact of today's industrial data on the CNB's monetary policy and the koruna exchange rate is negligible. The CNB meets tomorrow, and we anticipate a modest 25-basis-point rate cut.

The koruna weakened today, influenced by the US election results. Market concerns about Donald Trump's plans to introduce tariffs on trade and the expected higher trajectory of Fed rates, due to potential inflationary developments in the US, are key factors. This adds to the uncertainty for the December CNB meeting, where the CNB may consider leaving rates unchanged due to the weak koruna.