Macroeconomic Forecast - August 2022
Introduction and summary
The pandemic-weakened world economy has been hit by several shocks this year, most notably by the war in Ukraine. Higher-than-expected inflation, particularly in the United States and major European economies, has led to a tightening of financial conditions. China has seen prolonged lockdowns of important economic centres due to the application of strict anti-epidemic restrictions. As a result, the Chinese economy slowed sharply in the second quarter, which had a negative impact on global demand and supply.
According to the preliminary estimate of the Czech Statistical Office, real gross domestic product of the Czech Republic, adjusted for seasonal and calendar effects, increased by 0.2% QoQ and by 3.6% YoY in Q2 2022. In Q1 2022, for which detailed data on the structure of growth are available, GDP grew by 5.1% YoY (unadjusted).
Household consumption was 7.6% higher year-on-year in Q1 2022. The strong growth rate reflected not only a low comparison base but also a significant decline in the savings rate. A decrease in real household disposable income, driven by accelerating inflation, had a negative impact on consumer spending. General government consumption increased by 2.2% due to higher employment and purchases of goods and services.
Gross fixed capital formation rose by 8.1%, the fastest growth since the end of 2018. Investment in transport equipment was the largest contributor, but all important categories showed growth. From a sectoral perspective, it was driven by privately-financed investment of firms and households.
Although the contribution of the change in inventories and valuables to GDP growth (1.9 pp) was much lower than in the second half of the previous year, it still contributed significantly to the increase in economic output. Firms apparently continued to replenish inventories to avoid losses from high inflation and component supply shortfalls, and stocks of work in progress also likely increased.
By contrast, the external trade balance dampened economic growth (contribution of −2.5 pp), not only because of weak exports but also due to a recovery in import-intensive investment activity and continued accumulation of inventories, which boosted import growth.
While the economy had grown in the first half of this year despite adverse circumstances, it should experience a mild recession in the second half of the year. Nonetheless, GDP for the full year 2022 could increase by 2.2%. Growth should be driven by fixed capital investment and increased inventory accumulation. Household final consumption expenditure will be dampened by a sharp rise in the cost of living, especially energy prices, and by tighter monetary policy. The external trade balance should take 1.0 pp off the growth momentum.
Economic growth could slow further to 1.1% in 2023. Households will continue to face the impact of high inflation next year, so the dynamics of their consumption should remain very low. Gross fixed capital formation will continue to be pro-growth, but weaker year-on-year inventory accumulation will slow the economy noticeably. With weak domestic demand, the foreign trade balance should thus be the main driver of growth.
High inflation slows economic growth and lowers living standards. Annual inflation is expected to accelerate further in the second half of the year and approach 20%. The average rate of inflation should thus reach 16.2% this year. Not only the prices of food, fuel, electricity, natural gas and imputed rent, but also other categories of goods and services are contributing significantly to the exceptionally strong rise in consumer prices. Domestic demand pressures are also boosting inflation, but these should be dampened by the previous increase in monetary policy rates. Over the forecast horizon, this factor should also contribute to the appreciation of the koruna (the exchange rate is currently also supported by the CNB’s foreign exchange interventions), which will have an anti-inflationary effect. The average inflation rate could slow to 8.8% in 2023.
Imbalances related to labour shortages in virtually all sectors of the economy continue to be evident in the labour market. Thus, despite the expected shallow recession in the second half of this year and weak economic momentum in 2023, the unemployment rate should virtually stagnate, reaching 2.5% on average in 2022 and rising slightly to 2.6% in 2023. The tight labour market will push wage growth higher, though it will lag behind inflation. Average real wage should therefore fall this year and next.
The current account of the balance of payments showed a deficit of 2.0% of GDP in Q1 2022, mainly reflecting a deterioration in the balance of goods due to frictions in the automotive industry and a significantly negative terms of trade driven by mineral fuel prices. Stronger investment activity, slowing economic growth abroad and rising input and energy prices should continue to contribute to the negative balance of goods this year and next. The current account deficit is thus expected to reach 4.6% of GDP in 2022, before declining to 4.0% of GDP in 2023 as price pressures recede.
The general government sector’s performance in 2022 reflects the economic and financial consequences of the Russian aggression against Ukraine and the related humanitarian crisis, the support to households and firms affected by the huge price increases, and last but not least, the expenditure triggered by the COVID-19 epidemic. We therefore expect a deficit of 3.8% of GDP. The fiscal policy stance is expected to lead to a structural deficit of 3.0% of GDP and an increase in debt to 42.4% of GDP.
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2022 | 2023 | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Current forecast | Previous forecast | |||||||||
| Nominal GDP | bill. CZK | 5 111 | 5 411 | 5 791 | 5 709 | 6 108 | 6 799 | 7 356 | 6 618 | 7 135 |
| nominal growth in % | 6,5 | 5,9 | 7,0 | -1,4 | 7,0 | 11,3 | 8,2 | 8,1 | 7,8 | |
| Gross domestic product | real growth in % | 5,2 | 3,2 | 3,0 | -5,5 | 3,5 | 2,2 | 1,1 | 1,2 | 3,6 |
| Consumption of households | real growth in % | 4,0 | 3,5 | 2,7 | -7,2 | 4,1 | 0,5 | 0,5 | 0,5 | 4,5 |
| Consumption of government | real growth in % | 1,8 | 3,9 | 2,5 | 4,2 | 1,5 | 0,8 | 1,3 | 1,0 | 1,0 |
| Gross fixed capital formation | real growth in % | 4,9 | 10,0 | 5,9 | -6,0 | 0,7 | 6,1 | 3,4 | 2,2 | 5,9 |
| Contribution of net exports | pp | 1,2 | -1,2 | 0,0 | -0,4 | -3,6 | -1,0 | 0,9 | 0,1 | 0,2 |
| Contrib. of change in inventories | pp | 0,5 | -0,5 | -0,3 | -0,9 | 4,8 | 1,3 | -1,2 | 0,0 | -0,4 |
| GDP deflator | growth in % | 1,3 | 2,6 | 3,9 | 4,3 | 3,3 | 8,9 | 7,0 | 6,9 | 4,1 |
| Average inflation rate | % | 2,5 | 2,1 | 2,8 | 3,2 | 3,8 | 16,2 | 8,8 | 12,3 | 4,4 |
| Employment (LFS) | growth in % | 1,6 | 1,4 | 0,2 | -1,3 | -0,4 | -0,7 | 0,2 | 1,2 | 0,2 |
| Unemployment rate (LFS) | average in % | 2,9 | 2,2 | 2,0 | 2,6 | 2,8 | 2,5 | 2,6 | 2,5 | 2,6 |
| Wage bill (domestic concept) | growth in % | 9,2 | 9,6 | 7,8 | 0,1 | 5,8 | 9,8 | 7,9 | 6,0 | 6,2 |
| Current account balance | % of GDP | 1,5 | 0,4 | 0,3 | 2,0 | -0,8 | -4,6 | -4,0 | -2,2 | -1,9 |
| General government balance | % of GDP | 1,5 | 0,9 | 0,3 | -5,8 | -5,2 | -3,8 | . | -4,5 | -3,2 |
| Assumptions: | ||||||||||
| Exchange rate CZK/EUR | 26,3 | 25,6 | 25,7 | 26,4 | 25,6 | 24,6 | 24,4 | 24,4 | 24,2 | |
| Long-term interest rates | % p.a. | 1,0 | 2,0 | 1,5 | 1,1 | 1,9 | 4,1 | 4,2 | 3,9 | 3,6 |
| Crude oil Brent | USD/barrel | 54 | 71 | 64 | 42 | 71 | 105 | 88 | 105 | 91 |
| GDP in the euro area | real growth in % | 2,8 | 1,8 | 1,6 | -6,5 | 5,3 | 3,0 | 1,2 | 2,6 | 2,9 |
Tables and Graphs
Preparation of the Macroeconomic Forecasts
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 - August 2022 (.ZIP, 377 kB)
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Updated: 19.8.2022
Information
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The Macroeconomic Forecast is prepared by the Economic Policy Department of the Czech Ministry of Finance. It contains a forecast for the years 2022 and 2023, and for certain indicators an outlook for the 2 following years (i.e. until 2025). It is published on a quarterly basis (in January, April, August and November).
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Any comments or suggestions that would help us improve the quality of our publication and closer satisfy the needs of its users are welcome. Please send any comments to the following email address: macroeconomic.forecast(at)mfcr.cz
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Cut-off Date for Data Sources: The Macroeconomic Forecast is based on data known as of 10 August 2022.