Page 72 - CE Outlook Regions 2022

5.0 Markets outlook

5.1 Markets - Czech Republic

CNB expects the Czech koruna to strengthen in 2022, mainly due to
recovered export growth. A gradual tightening of ECB monetary
policy will have a modest opposite effect, the CNB stressed. The
pace of appreciation will thus ease a bit in 2022, and the Czech
koruna will be close to CZK24 to the euro at the end of 2023.

According to KB analysts, the koruna’s appreciation to the euro will
slow down in 2022, with the rising market interest rates and the
development of the US dollar to continue to determine the future
direction of the koruna. In the end-2022 the koruna is expected to
stand at CZK24.80 to the euro. The biggest risk is seen in the trend
of the US dollar, which may surprise with its strength and halt or
reverse the koruna’s appreciation.

According to EBRD, the relatively shallow capital markets in Czechia
could deter the growth of innovative firms in the recovery phase. The
depth of capital markets relative to GDP in Czechia is seen as low
(41%) compared to the EU average but higher than in its Visegrad
neighbours.

The finance ministry said that a fall in gross fixed capital formation
back in 2020 led to a slower increase in the capital stock. Its
contribution to potential growth is expected to reach 0.6 percentage
point in 2021, and go up slightly higher from 2022 onwards, thanks
to renewed investment growth.

The Prague Stock Exchange (PSE) was among the 10 most
profitable stock exchanges in the world in 2021, driven up mainly by
bank stocks (Komercni Banka, Erste Bank and Moneta Money
Bank) and Czech semi-state energy company CEZ, significantly
supported by the CNB hike of its interest rate as well as the
unprecedented rise in energy prices and EU emission allowance.
Given that the CNB does not plan to abandon its strict interest rate
policy, bank stocks are expected to be also a driver of PSE
improvement in 2022.

72 CE Outlook 2022 www.intellinews.com