Economist: How a Trump election win may make Czech mortgages more expensive

Last Saturday's attempted assassination of American presidential candidate Donald Trump has, according to political analysts, boosted his chances of re-election. According to Trinity Bank chief economist Lukáš Kovanda, if Trump becomes president, mortgages in Czechia will become more expensive due to the U.S. economy’s knock-on effect on the rest of the world. 

As the probability of Trump's presidency grows, so does the likelihood of higher U.S. deficits. His plans for large-scale corporate tax cuts without a clear spending strategy are expected to deepen the deficit and potentially lead to inflation, Kovanda explains in Czecha media outlet iDnes. This has already caused investors to demand higher yields on long-term U.S. bonds, with the International Monetary Fund warning of potential "contagion" that could impact the Czech Republic's bonds and mortgages. 

Czechia’s current headline interest rate is 4.75 percent – a large decline from the high of 7 percent registered at the end of 2023. This was done to stimulate lower mortgage rates and increase the number of mortgages taken out and properties purchased. This has certainly borne fruit – in June, banks provided mortgage loans worth CZK 24.2 billion, the highest value since March 2022 and a 73-percent rise year on year. 

Trump’s election could also drive up inflation; his promises of tariffs on imports from various countries, including the EU, are believed to contribute to inflationary pressure. This, in turn, could lead not only to higher yields on Czech mortgages, but also to hampered trade from Czechia due to higher export prices. It is worth remembering that a significant proportion of Czechia’s economy is based on its huge automotive-manufacturing output (and subsequent exports).

Talking to Czech media outlet Deník N, Česká spořitelna economist Michal Skořepa believes that a victory for Donald Trump would reduce the likelihood of more U.S. companies moving branches to Europe due to his isolationism and “America-first” approach.

Conversely, member of the government's National Economic Council Helena Horská affirms that “pragmatism always wins in business,” and a business relationship that would benefit both Czechia and the U.S. – especially against foreign powers such as China – would be something that Trump utilizes. 

Media outlet Euronews writes that a Trump victory could trigger a 1 percent GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. It would also mean that EU countries, including (and perhaps especially) Czechia would need to ramp up defense spending after Trump’s previous comments that he would curb U.S.-driven spending to Ukraine.