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The Czech Republic economy advanced 0.2 pct on quarter in the last three months of 2016, the same as in the previous period but well below market expectations of a 0.6 pct expansion.
Household spending and external demand were the main drivers of growth, preliminary estimates showed.
On the production side, growth was mainly supported mainly by manufacturing.
Year-on-year, the economy advanced 1.7 pct, lower than 1.9 pct in the previous quarter and forecasts of 2.3 pct.
Considering full 2016, the GDP grew 2.3 pct, below the central bank's forecast of 2.4 pct. Domestic and external demand was favorable for most industries, especially for manufacturing. In contrast, construction shrank.
Retail trade also picked up by 3.9% QoQ SAAR (from 2.5%), which, although the series is extremely volatile, reflecting solid consumer demand.
Stay short EURCZK on limits of an unconventional policy, we remain short EURCZK as the CNB policy floor enters its dying days (or dying months).
Inflation returned to the 2% target earlier than expected which supports the case the floor to be removed as part of a fundamentally warranted tightening in monetary conditions by the middle of the year. That being said, we are cognizant that this is a well-positioned-for event and forward points are becoming increasingly volatile as the market tries to second-guess the potential extent of profit taking on short EURCZK positions once the floor is removed, and the FX markets ability to absorb a potentially heavy quantity of EURCZK demand without causing the cross to perversely rally.
Stay short EURCZK forward – at spot reference: 27.0180 expiry 27 November, 2017.
