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      Scope has completed a monitoring review for the Czech Republic
      FRIDAY, 11/10/2024 - Scope Ratings GmbH
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      Scope has completed a monitoring review for the Czech Republic

      The periodic review has resulted in no rating action.

      Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations.

      Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

      Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

      Scope completed the monitoring review for the Czech Republic (long-term local- and foreign-currency issuer and senior unsecured debt ratings: AA-/Stable Outlook; short-term local- and foreign-currency issuer rating: S-1+/Stable Outlook) on 8 October 2024.

      This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

      Key rating factors

      The Czech Republic's AA- rating reflects: i) a favourable track record of sound macroeconomic policies that enhance economic stability; ii) a competitive industrial base, including a well-developed manufacturing sector, supported by large and stable inflows of FDI and EU funds, contributing to overall resilience; and iii) a stable fiscal position, characterised by moderate budget deficits and debt levels.

      Challenges include: i) an economic structure reliant on global supply chains and external demand, exposing the country to external shocks; and ii) adverse demographic trends and budgetary constraints related to the country's rapidly aging population and labour shortages, which limit potential growth and increase medium-term pressure on public finances.

      Scope forecasts a moderate 1.1% growth in 2024, following the stagnation in 2023, with an acceleration to 2.3% in 2025. The slower growth in 2024 is due to weaker external demand and the restrictive fiscal consolidation measures from January, while the 2025 rebound will be driven by rising household consumption as real incomes recover. Long-term growth is expected to stabilise around 2.5%, strong compared to peers but below pre-crisis levels.

      Scope foresees a reduction in the budget deficit to 2.8% of GDP in 2024, from 3.8% in 2023. This improvement is mainly due to the end of temporary energy price measures and the January 2024 fiscal consolidation package. The debt-to-GDP ratio is expected to rise moderately to 46.7% by 2025, with stability projected through 2029. However, challenges such as flood-related expenses, the government's commitment to increasing military spending, and sluggish economic growth could complicate the full execution of the consolidation plan.

      The Stable Outlook reflects Scope’s view that risks to the ratings are balanced over the next 12 to 18 months.

      The ratings/Outlooks could be downgraded if, individually or collectively: i) elevated budget deficits result in unsuccessful fiscal consolidation and hinder government targets; and/or ii) medium-term growth prospects were constrained, for example as a result of high inflation.

      Conversely, the ratings/Outlook could be upgraded if, individually or collectively: i) fiscal performance improved materially, resulting in a significant decline in the public debt ratio; and/or ii) the country’s resilience to external shocks strengthened materially, supporting macroeconomic sustainability.

      For the updated report accompanying this review, click here.

      The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 29 January 2024) is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
      This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
      Lead analyst Jakob Suwalski, Senior Director

      © 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.

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