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Czechs are reeling from the inflationary shock, their confidence in the economy is growing

Czechs are reeling from the shock caused by the wave of inflation and the unprecedented drop in real incomes associated with it.

Consumer confidence increased by 4.8 points to 87.7 points compared to January. The last time it was higher was just a year ago, i.e. last February. “Like in January, most of the monitored indicators recorded a month-on-month improvement. However, consumer sentiment as a whole still remains well below its long-term average,” said Anastasija Nejasova from the CZSO’s economic survey department.

While consumers have a little more faith in the economy, business confidence fell, decreasing by 1.3 points compared to January to 92.5.

Entrepreneurs in the construction industry are in an above-average mood, where confidence rose from 104.4 points to 106.2 points, and there was also success in selected services, where the index ended at 94.6 points from 93.3 points in January.

Worse news, however, came from trade, where confidence fell to 94.4 points from 94.8 points, and a sharper drop also came in industry, where the index fell from January’s 93.1 points to 88.7 points. At the same time, industry is a significant part of the performance of the Czech economy.

“In February, businessmen’s confidence in industry fell to the lowest value since June 2020. Companies in selected segments of industry expect a more significant slowdown in the growth rate of manufacturing activity and also a drop in employment,” said Jiří Obst, head of the CZSO’s economic survey department.

According to the analysts, the data thus indicate that the Czech economy will basically stagnate around zero with the possibility of a weak fluctuation above and below it.

Households believe that we have hit rock bottom

The number of households assessing their current financial situation worse than in the previous 12 months was almost unchanged in February compared to January. However, month-on-month, according to statistics, the number of consumers expecting a worsening of their financial situation in the next 12 months has significantly decreased.

Compared to January, households are also less worried about the deterioration of the overall economic situation. The share of consumers who believe that the current time is not suitable for making large purchases also decreased slightly month-on-month.

According to Jakub Seidler, Chief Economist of the Czech Banking Association, the CZSO’s data sound mixed. “Households are starting to see the current economic situation less negatively. “Confidence among businessmen has decreased only in industry, but prospects in all monitored segments regarding the future have, on the contrary, significantly worsened,” he said.

“There is still no change in the fact that the first half of this year will be marked by weak growth, fears of a recession and risks that inflation will ultimately be higher than current estimates assume,” he added.

“Overall, the results of confidence in the economy are unfavorable and indicate a continuation of the recession that began in the second half of last year. This trend can only be reversed by a rapid decline in inflation or an influx of new orders to companies. Neither is very likely for the coming months,” says Creditas Bank chief economist Petr Dufek.

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