Will the low crown go down in 2016?
The Czech economy was one of the fastest growing in Europe last year and, while it might catch a breath in 2016, wealth creation should still be strong. One of the major questions for both exporters and those targeting the domestic market is whether the central bank’s low crown policy will be cut short or prolonged.
This is the prediction of the chief economist of Era Poštovní Spořitelna, Jan Bureš:
“For the next year, I expect the economy to grow around 3.0 percent. The growth should mainly be based on domestic demand and less on exports, although I expect the exports to continue to grow.”
The economist points out that one side effect of the continued growth could be high investment by manufacturers in plant and improved processes, and with most of the equipment for that likely purchased abroad, that could dent the still strong Czech trade surplus.
It’s a fairly well established rule that any economic intervention has its winners and losers. The winner from the weak crown is overwhelmingly exporters who can grab a bigger share of foreign markets and cash in on bigger sales of their produce or services abroad. The losers are those who must purchase abroad with a weakened local currency.
The central bank originally expected to end the low crown policy in 2016, but the goal of sustained higher prices that would allow that has simply not happened. Inflation, helped by low oil prices, is stubbornly low. And with the European Central Bank pushing a cheap money, inflationary policy going the other way looks more complicated.
“I believe it’s going to be difficult to end the intervention policy in 2016, although maybe the domestic fundamentals are strong enough for the abolition of the intervention regime.”
Even if the low crown policy does end, Bureš says the bank will keep a rein on any rapid strengthening of the local currency.