In Central Europe, capital flows (foreign direct investments, portfolio flows and bank lending flows) have resisted rather well despite geopolitical uncertainties. Similarly, they do not seem to be affected, for the time being, by the weakening of economic activity in the region.
The last two quarters have been marked by slower growth in economic activity. This is mainly attributed to weaker levels of consumer spending. Furthermore, the country is still very exposed to supply chain disruptions in the automotive sector to a great extent, which adversely impacts both industrial activity and exports. The expected slowdown in the global economy in 2022 will also affect growth given the country’s high exposure to trade. Inflation has probably not yet peaked, which means that monetary tightening is likely to continue in the short term.
Economic growth experienced several short-lived boom-bust wild swings in 2020, amplified by trade openness and the severity of the second wave of Covid-19 in the fall. However, the recovery in the 3rd quarter proved strong. Industrial production and exports both performed well, boosted by a stable exchange rate (and substantial foreign currency reserves). In addition, thanks to very modest debt levels, the government was able to offer rapid and substantial support to the economy.
The Czech Republic is a high-income country of 10.6 million people. It has been a member of the European Union since 2004. The country remains outside the Eurozone, even though macroeconomic fundamentals are sound enough to join it. Its currency is the Czech koruna (CZK).
