Page 8 - Central & Southeast Outlook 2020

A slightly higher increase in wage growth in 2020 will be fostered by a further growth in the minimum wage from January 2020.
The average inflation rate is expected to amount to 2.6% in 2020, according to the ministry. The central bank expects inflation to remain above its 2% target in 2020 and 2021, driven by food, energy and services prices. In 1Q20 it should reach 2.1%. In long-term forecasts, inflation is expected to reach 2.2% in 4Q20 and 1Q21.
The central bank forecasts a slight appreciation of the Czech crown, hampered by deteriorating economic and price developments abroad. This slight appreciation will reflect continued real convergence of the Czech economy linked with labour efficiency growth and a temporary further widening of the interest rate differential within the eurozone amid a balanced effect of worsening developments abroad.
The Ministry of Finance forecasts the inflation rate will reach 2.6% in 2020, with a moderate anti-inflationary effect on the exchange rate. Domestic demand pressures will push inflation up.
In 2020 and 2021, the growth rates of exports and imports will converge. Accelerated export and investment growth will be reflected in a recovery in import growth to more than 4% in 2020. In 2021, the pace of imports will increase further.
Currently, the central bank’s two-week repo rate stands at 2%, the discount rate at 1% and the Lombard rate at 3%.
1.2 ​Macro - Estonia
Estonian economic growth fared above expectations in 2019, with GDP accelerating to above 4% y/y in the third quarter, according to the most recent available data. Based on better performance in the first three quarters of the year, there followed upward revisions of growth in 2019.
But as the outlook for 2019 improved, there also appears to be a consensus that the small, open, and vulnerable to external tensions Estonian economy will clearly ease its growth rate in 2020.
Growth is expected at 2%-2.3% this year, on the back of the dampening effect of faltering exports - that, in turn, being an effect of the downturn in global trade, including the decline in Nordic real estate markets, forecast to exert a negative impact on construction-related exports.
While investment growth surprised to the upside in 2019, it is not a given that the trend of strong growth in investment will hold. “In a small economy, it is difficult to predict capital spending, but changes in demographics and developments in sentiment indicators make it difficult to assume that the recent strong trend can continue,” SEB wrote.
8​ CESE Outlook 2020​ ​ ​www.intellinews.com