The first estimate of GDP growth in the second quarter slipped to 2.3% year-on-year (0.5% quarter-on-quarter). A weaker print below 3% was expected due to the base effect so this is no game changer for our 2018 outlook or the central bank's monetary stance.

Czech GDP dynamics have eased. Qoq growth printed only 0.5%. The Czech economy has recorded sluggish growth figures since the second half of last year. For the second quarter, this is visible also in a yoy comparison as dynamics do not include the exceptional growth from 2Q17. Yoy dynamics thus recorded a low 2.3%, clearly showing that the economy lags behind its regional peers. Hungarian GDP increased 4.6% yoy, and Polish GDP added 5.2%. Domestic dynamics correspond more with German growth, which rose 2.0% yoy. To a large extent, capacity constraints are to blame. These are most visible on the labour market. Unfortunately, we do see no notable productivity gains. Without an increase in productivity, the Czech economy cannot aim for stronger dynamics. Productivity so far shows very modest growth despite the solid investment activity of the private sector.

Inflation decelerated to 2.3% in July from 2.6% in the previous month. This weaker print was driven mainly by lower food prices but core inflation accelerated further. This is no game changer for the central bank's hawkish outlook for this year.