10.7.2025
- What did the central bank’s actions mean for the ordinary saver, and what for the investor?
- How do interest rate changes affect the mortgage market?
- Who benefits from changes in the energy market – households or energy investors?
- And will the Czech economy kick into growth in the new year?
Our chief economist Petr Barton looks back at 2024 and maps out what it has brought in important aspects of business not only for the Natland investment group, but also for investors and consumers, and also predicts what lies ahead in the economy this year:
THE PRICE OF MONEY
The central bank interest rate is an important reference point for every investor. Although it itself only determines the price of so-called short-term money, and investors usually measure their performance by the price of long-term money, it is also significantly related to the CNB rate and its expectations. Overall, during 2024, the repo rate has fallen significantly – by 41%. Indeed, the rate itself has fallen from 6.75% to 4.00%. And there was still a non-zero probability that even at its last monetary policy meeting before Christmas the Bank Board would cut the rate by another notch to 3.75. Thus, the central bank cut the cost of money at each of its meetings in 2024. At the first three by half a percentage point each time, and at the next three by a quarter percentage point each time. From this point of view, it almost looks like a pre-calculated regularity, which can be interpreted as meaning that there was nothing that surprised the central bank during the year that it needed to react to by changing the trend.
PRICE OF INVESTMENT PROJECTS
For savers, this central rate cut had two effects. The central bank’s actions significantly reduced the interest rate that savers could earn on savings accounts with banks. There, the link was quite strong. So the saver had to react and start looking for an appreciation of his savings in a more classical, active way: through some kind of participation in the real appreciation in the economy – which no one does but the investor. For investors, on the other hand, this has meant a partial freeing of hands for investment projects. Even if the price of the money they use to finance their projects has not fallen as dramatically as central bank rates, still, loans are a bit cheaper at the end of 2024 than they were on the previous New Year’s Eve. In such an environment, investment is slowly recovering from the hibernation imposed by historically expensive money. But construction investment, for example, enjoyed the slow improvement only until mid-year, when the already poorly functioning construction management system almost collapsed. And because time is not inflatable and more projects keep coming into the system, the summer’s problems will continue to move like a bubble in the project pipeline in the months ahead. What good will discounted capital project money do when the overall cost of doing so is, in turn, going up.
HYPOTECHNIC MARKET
According to the Czech Banking Association’s Hypomonitor, the typical realised (!) mortgage rate for new mortgages fell from 5.55% to 4.90% during the year. Of course, this is visually a smaller reduction than the CNB rates, but this is related to the longevity of mortgage loans. Still, for many real estate investors, this is a significant reduction in mortgage payments. This was also reflected in the fact that the volume of new mortgages granted at the end of 2024 was double that at the beginning. And yet it was smaller at the end of the year than at the peak at the end of the holiday season, partly related to the statutory rule change from September. All of this means that the mortgage market has recovered significantly, and people have started buying homes again. Not just the old ones but also the new ones, whose prices have often recovered even better.
ENERGY PRICES
It was still the case that the spot price of electricity was primarily determined by the price of gas. During the first two months of 2024, the price fell to a long-term low of EUR 23 per MWh on the European exchange, which (especially after accounting for inflation) boldly competed with the pre-crisis prices. But then, as summer (and storage refills) approached, the price started to rise again, to almost double to €44 at the end of November. Overall, however, the trend of spot electricity prices being more volatile from year to year was confirmed. And at several points in the year, especially when it was not windy in the North Sea, the fluctuations reached historic highs. Going forward, therefore, investment, particularly in balancing grid stability, will continue to grow in importance. “Alternative” power producers such as thermal power plants will play an increasing role in this. At the same time, the development of electricity prices on the market is approaching the point where it will no longer pay to generate electricity from coal (which still accounts for about 40% of electricity in the Czech Republic), and we will probably be realistically “out” of coal before the 2030s. However, prices for consumers followed the opposite trend throughout the year. For almost every supplier, the price list from the following month was always more favourable than the one from the previous month, and so consumers on the new tariff now have cheaper electricity than they did on the new tariff last year. However, it remains the case that investment in the energy sector (and in particular in alternatives to the “conventional”) will be the hottest area for investors. This is despite the fact that the Treasury, despite threats of further lost arbitrations, has reduced its repayments to 2025 of the debt incurred by the state to renewable energy investors.
AND WHAT’S EXPECTED IN 2025?
The economy was supposed to “take off” to growth in 2024, for which GDP growth of around 2.5% was predicted (after permanent stagnation since the first moments of the covid). Finally, we will be happy if the Czech economy grows by around 1% in 2024.
Now, watch out.
The evolution of the estimates for 2025 follows almost exactly the evolution of the estimates for 2024. Two years in advance, growth is always estimated at 3.5%, that “now it’s starting” and then the next successive estimate is lower than the previous one. And the estimates for 2025 are being reduced at roughly the same rate as the estimates for 2024. So it may be that, despite the optimism, we will end up being glad for that 1% again next year.
The bad developments in Germany suggest so. On the other hand, we already have data showing that the Czech economy’s dependence on exports of semi-finished goods to Germany is decreasing, which is important for the future. In the end, the most important factor for the Czech economy in 2025 may not be Germany, but Trump. Gas prices in Europe could fall with him. Maybe even the world price of oil (and thus the cost of producing almost everything). If he imposes any tariffs on Europe, as everyone fears, they will be targeted rather than across the board – and then it will be important for the Czech Republic to see which European economy would be targeted the most.
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