Czech koruna strength, gloomy GDP breakdowns

The recent strength of the Czech koruna, which hit a 14-year high this week, adds to a number of disinflationary forces that are currently taking hold in the country. And despite hawkish noises from policymakers, we think that investors are underestimating how quickly the National Bank will pivot to interest rate cuts this year. Meanwhile, the Q4 GDP breakdowns released across Central and Eastern Europe (CEE) this week highlighted the squeeze on domestic demand from high inflation and interest rates at the end of 2022. We think that a recession in the euro-zone will drag on external demand this year, and that GDP growth in CEE will disappoint analysts’ expectations.