Macroeconomic Forecast - April 2016

• Macroeconomic Forecast - April 2016 (.PDF, 937 kB)

Summary of and Risks to the Forecast

In the fourth quarter of 2015, YoY growth of the Czech economy was lower than we had estimated in the previous Forecast. Seasonally adjusted real GDP did not change compared with the third quarter of 2015, and it increased by 4.0% YoY. Considering the announced modification of seasonal adjustment by the CZSO that should occur together with the publication of data for the first quarter of 2016, however, the result of the fourth quarter of 2015 should be revised upwards (the first quarter of 2015 in the opposite direction, with no impact on growth for the whole year 2015).

Nevertheless, the whole year 2015 can be evaluated as extraordinarily successful. Real GDP growth of 4.2% was the highest since 2007. GDP growth was driven exclusively by domestic demand, with gross fixed capital formation being its fastest growing component. Efforts for maximal use of EU funds from the programming period 2007-2013 manifested itself with strong YoY growth of investments in fixed capital of 7.5%. However, final consumption expenditure of the government (by 2.8%) and households (also by 2.8%) increased dynamically, too. In foreign trade, stable growth of the CR's main trading partners' economies and increased imports, which reflect the accelerated growth of domestic demand and high import content of Czech export, roughly offset each other. The economy was growing strongly in completely balanced macroeconomic environment.

Real gross value added (GVA) increased by 0.3% QoQ in the fourth quarter of 2015. While GVA in industry and construction moderately declined, it rose in most branches of services. Owing to the dynamic development in previous quarters, GVA rose by 3.6% YoY.

The inflation rate in 2015 reached only 0.3% and was thus the lowest since 2003 and the second lowest in the history of the independent Czech Republic. Low inflation is mainly caused by a deep decline in world prices of mineral fuels and generally low inflation on the global scale.

On the labour market, the economic upswing was reflected in favourable development of employment. Its YoY growth of 1.4% was the highest since 2008. In the fourth quarter of 2015, unemployment rate (LFS) decreased to 4.5% and was thus the second lowest in the EU, following Germany.

Surplus on the current account of the balance of payments reached 0.9% of GDP in 2015, and was the highest in the history of the independent Czech Republic.

When evaluating the high growth of the Czech economy in 2015, however, it is necessary to take into account that it was largely influenced by one-off or temporary factors. The most important of them was the impulse in the form of projects cofinanced from the EU funds in the programming period 2007-2013, which could only be used by the end of 2015.

Positive supply shock in the form of a deep decline in the CZK crude oil price also had considerably positive impact on growth. Low price of oil should also support the economy in this year, though to a much smaller extent than in 2015. The forecast of the oil price was revised downwards compared to the January Forecast.

On the other hand, there was a small deterioration of assumptions about the external environment, which had a visible impact on the growth of Czech export markets. Expected development of investment, in particular in the private sector, was also revised slightly downwards. The new forecast also reacts to the surprising slowdown of economic growth in the fourth quarter of 2015.

The result is a minor correction of the forecast of real GDP growth in 2016 from 2.7% to 2.5%. The forecast for 2017 remains unchanged at 2.6%.

Regarding expected tax revenues, it can be stated that the forecast of the most important tax bases, i.e. the nominal wage bill, nominal consumption of households and net operating surplus, did not change substantially.

We consider risks to the forecast to be titled to the downside, in particular due to the risks in the external environment.

The slowdown in China's economic growth, which will most probably continue also in the future, represents a major risk for further development of the world trade. However, this factor should not be crucial for the Czech Republic, despite the fact that the interconnectedness of the Czech and the Chinese economy is higher than suggested by the data on their mutual foreign trade, due to their involvement in global supply chains. Continuation of increased volatility and uncertainty on the financial markets, to which negative data on the development of the second biggest world economy, in addition to an ongoing decrease in commodity prices (partially due to developments in China), has recently made a significant contribution, is also a risk. A specific problem in this connection is the question of information content of the Chinese official statistics.

Another unfavourable factor is geopolitical risks. Conflicts in the Middle East and Northern Africa caused a deep migration crisis, the economic impact of which on individual EU states cannot be estimated yet. Provided that the number of applicants for asylum in the Czech Republic does not increase, direct impacts on the Czech economy should be negligible. At present, the migration crisis represents a negative risk for the Czech Republic, particularly due to its possible impact on the future form of the EU (keeping the current Schengen Area arrangements). A risk with a potentially important impact on the Czech Republic is also the planned June referendum on staying of the United Kingdom in the EU. Last but not least, economic growth in some countries of the EU, and indirectly (through foreign trade) also in the Czech Republic, could be affected negatively should terrorist attacks intensify.

Last but not least, a risk for the Czech economy could be the continuation of more significant pressures on the appreciation of the koruna exchange rate below 27 CZK/EUR, which could be strengthened by the further easing of the ECB's monetary policy. Against these tendencies, however, the CNB can intervene on the foreign exchange market basically without limitation, yet the possibility that it would use other, less conventional, instruments of monetary policy to weaken the appreciation pressures in the case of continued accumulation of foreign exchange reserves, cannot be excluded.

A positive risk for economic growth is, on the contrary, a possibility of the continuation of the current low prices of commodities.

Tables and Graphs

• Tables and Graphs - April 2016 (.XLSX, 1960 kB)

Preparation of the Macroeconomic Forecast

• Preparation of the Macroeconomic Forecast – a Look under the Hood - July 2013 (.PDF, 91 kB)

Updated: 25.07.2013

Evaluation of Forecasting History at the Ministry of Finance

• Macroeconomic Forecasts at the MoF - A Look into the Rear view Mirror - July 2013 (.PDF, 184 kB)
• AnalytIQ - tools to assess the MoF forecasts accuracy and much more - April 2016 (.ZIP, 330 kB)

To run, the application requires Microsoft Excel 2010 or Microsoft Excel 2007. Macros need to be enabled.
Updated: 08.04.2016

Information

• The Macroeconomic Forecast is prepared by the Economic Policy Department (as of 1 January 2016, Financial Policy Department was renamed to Economic Policy Department) of the Czech Ministry of Finance on a quarterly basis. It contains a forecast for the current and the following year (i.e. until 2017) and for certain indicators an outlook for another 2 years (i.e. until 2019). As a rule, it is published in the second half of the first month of each quarter.
• Any comments or suggestions that would help us to improve the quality of our publication and closer satisfy the needs of its users are welcome. Please direct any comments to the following email address: macroeconomic.forecast(at)mfcr.cz
• Cut-off Date for Data Sources:
  The forecast was made on the basis of data known as of 31 March 2016.