Page 22 - CE Outlook Regions 2022

automate production. On the other hand, the investment boom is
expected to be dampened by continued production and supply chain
disruptions until mid-2022.

2.1.2 External environment
In 2H22, the trade surplus of Czechia is expected to decline
significantly due to production shutdowns in the export-oriented
automotive industry resulting from component shortages, and strong
import dynamics for investment purposes. In 2022, KB estimates a
reduction in the foreign trade surplus to CZK23bn.

At the same time, the profitability of foreign-controlled companies can
be expected to recover and the primary income deficit to widen. Thus,
the Czech finance ministry expects a slightly negative balance on the
current account in 2021 and 2022.

According to the CNB outlook, Czech import growth will outpace export
growth but will also slow down, boosted mainly by a recovery in
import-intensive household consumption and private investment. This
will lead to the contribution of net exports to GDP growth to be negative
until mid-2022 and then positive due to a recovery in exports.

In the EC outlook, net exports are forecast to contribute negatively to
growth in 2021 due to intensifying supply chain disruptions, which are
expected to diminish in the course of 2022. Net exports are expected to
restart their contribution to economic growth in 2023. After being initially
depleted during the pandemic, inventories are also projected to
contribute significantly to GDP growth in 2021, the EC stressed.

2.1.3 Inflation and monetary policy

High energy and other commodity prices as well as supply-side
problems are proving to be a major factor in soaring inflation in
Czechia, while demand is still supported by very loose monetary and
fiscal policy. The IMF thus expects the average inflation to rise to
6.1% in 2022. Inflation is projected to reach the CNB policy target by
2023.

The IMF supports the Czech central bank's approach toward raising
its policy rate to prevent inflation pressures. However, it stressed
that the policy action should carefully consider risks from raising
rates too quickly, because of downside risks to the outlook due to
possible resurgent COVID-19 pandemic waves,
longer-than-expected increases in energy prices or prolonged
disruptions to global supply chains, whose affect may be worsened
by a too-soon tightening of policy.

On the other hand, the IMF noted that delayed action in monetary
policy may lead to untethered inflation expectations, wage-price
spirals and second-round inflation pressures.

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