ECONOMY TO GROW BY 2.4% THIS YEAR ACCORDING TO NEW PREDICTION BY MINISTRY OF FINANCE. DOWNTURN RISKS GROWING.

ECONOMY TO GROW BY 2.4% THIS YEAR ACCORDING TO NEW PREDICTION BY MINISTRY OF FINANCE. DOWNTURN RISKS GROWING.

In its April macroeconomic predictions , the Ministry of Finance anticipates that the domestic economy will grow year-on-year by 2.4%. This new prediction is one tenth of a percentage point lower than January’s. At this time last year, the ministry predicted 3.3% growth for 2019. The anticipated economic growth for next year, however, has not changed from the January prediction and remains at 2.4%.

Main Macroeconomic Indicators
2014201520162017201820192020201820192020
Current forecastPrevious forecast
Gross domestic productbill. CZK4314459647685047530455955839531355905823
Gross domestic productgrowth in %, const.pr.2,75,32,54,42,92,42,42,82,52,4
Consumption of householdsgrowth in %, const.pr.1,83,73,64,33,22,92,83,53,33,0
Consumption of governmentgrowth in %, const.pr.1,11,92,71,33,72,21,93,82,11,9
Gross fixed capital formationgrowth in %, const.pr.3,910,2-3,13,710,53,12,78,83,12,7
Net exportscontr. to GDP growth, pp-0,5-0,21,41,1-0,7-0,30,0-0,6-0,3-0,1
Change in inventoriescontr. to GDP growth, pp1,10,8-0,40,1-1,20,00,0-1,10,00,0
GDP deflatorgrowth in %2,51,21,31,42,13,01,92,42,61,7
Average inflation rate%0,40,30,72,52,12,31,62,12,11,6
Employment (LFS)growth in %0,81,41,91,61,40,40,21,30,30,2
Unemployment rate (LFS)average in %6,15,14,02,92,22,22,22,32,22,2
Wage bill (domestic concept)growth in %, curr.pr.3,64,85,78,39,37,55,99,67,76,3
Current account balance% of GDP0,20,21,61,70,30,20,30,30,30,2
General government balance% of GDP-2,1-0,60,71,60,90,3.1,61,0.
Assumptions:       
Exchange rate CZK/EUR 27,527,327,026,325,625,525,125,625,525,1
Long-term interest rates% p.a.1,40,60,41,02,02,22,42,02,73,0
Crude oil BrentUSD/barrel99524454716665715657
GDP in Eurozonegrowth in %, const.pr.1,42,12,02,41,81,01,41,91,41,5

Source: Ministry of Finance of the Czech Republic

The most important factor in growth of the Czech economy should remain in household consumption, which will be driven by exceptionally low unemployment, continuing strong wage growth and higher pensions. “Although fixed-capital investment and government spending should positively contribute to growth, it will be lower than in 2018, while foreign trade should remain negative,” the prediction stated.

In its new prediction, the Ministry of Finance foresees continuing global economic expansion, though it will gradually weaken. Downturn risks are also significantly elevated, meaning that the real results may be rather worse than the current estimates. One of these risks is the uncertainty surrounding the United Kingdom’s withdrawal process from the European Union.

The April prediction also included a reduction from the January version in the estimate of economic growth in eurozone countries this year from 1.4% to 1%. The Czech Republic’s main economic partner—Germany—will only post growth of 0.8%. “The slowing of economic growth in Germany is also a risk for the Czech economy. Industrial production has been falling since November 2018, and the trend in business sentiment indicators suggests the situation may worsen in the short term,” the prediction said.

The average inflation rate should reach 2.3% this year, meaning it will be slightly above the Czech National Bank’s target of 2%. Inflation is forecasted to slow to 1.6% next year.