THE CZECH ECONOMY IS EXPECTED TO GROW BY 2.5% THIS YEAR ACCORDING TO THE MINISTRY OF FINANCE

THE CZECH ECONOMY IS EXPECTED TO GROW BY 2.5% THIS YEAR ACCORDING TO THE MINISTRY OF FINANCE

Czech GDP will grow by 2.5% this year. This is according to the Ministry of Finance’s macroeconomic prediction, published on Wednesday 31 July. Compared to April’s quarterly prediction, the Ministry of Finance has raised its growth prediction by 0.1%. However, the ministry is also predicting a fall in growth of 0.1% in GDP next year. In 2020, the Czech economy should therefore grow by 2.3%. “The slowdown in global economic growth, which began in 2018, will continue this year. This will especially manifest in increased protectionism and escalating tension in international trade and related uncertainty between traders and consumers about future economic development. Risks are also noticeably spreading downwards,” the new prediction stated. According to the ministry, a fundamental source of uncertainty is the climax of the United Kingdom’s exit from the European Union.

Another unknown is the economic development of the Czech Republic’s largest export partner—Germany. The Ministry of Finance’s new forecast is based on an increase of 0.9% in Germany’s GDP this year and 1.5% next year. Chief Economist at ING Bank and Vice-Chairman of the Czech Fiscal Council Jakub Seidler pointed out on his Twitter account that Germany could, however, fare less well. “An assumption of 1.5% growth for Germany next year seems slightly optimistic. The consensus on the market is slowly nearing 1%, and further downward revisions will probably continue,” he wrote.

According to the new forecast, Czech economic growth will also be driven by domestic consumption, reflecting rapidly rising wages and exceptionally low unemployment. After last year’s strong growth of 9.5%, wages are expected to grow by a further 7.4%. In 2020, they should rise by another 5.9%. “Investment in fixed capital and government sector consumption should also contribute to growth this year, though to a lesser degree than last year. Foreign trade should also make a small positive contribution,” the ministry wrote concerning further development this year.

Economists on the forecasting panel of the Czech Banking Association make similar predictions to the ministry concerning economic development. In their forecast published on 25 July, they predict GDP growth of 2.4% this year and 2.3% in 2020. The Czech National Bank publishes its new forecast on 1 August.

The Ministry of Finance plans to update its July macroeconomic prediction by 21 August 2019. “The update will be used in formulating the macroeconomic framework of the draft state budget for 2020 and the budget forecast up to 2022,” ministry spokesperson Michal Žurovec stated.