Czech pre-2009 growth rate may return

Subject

Leaders and laggards among CE economies.

Significance

Economic growth remained solid in the Czech Republic and Poland in the first half of 2015. Czech GDP grew by 4.4% annually in April-June, well above expectations and the EU average; in Poland, the economy slowed marginally in the second quarter compared to the first. In Hungary, industrial production data for July underline the slowdown in GDP in the second quarter. Nevertheless, domestic demand has recovered across the Central European (CE) region, following the 2008-09 crisis setback; net exports' contribution to headline growth is far smaller than in recent years.

Impacts

• Drops in external demand in the EU and Asia, and in industrial performance, pose the most significant downside risks.
• After a disappointing 2015, Poland and Hungary should bounce back in 2016, supported by rising employment as slack in the economy recedes.
• As the risk of deflation subsides, the Czech Republic is expected to post the strongest rates of growth across the region in 2016-17.