Macroeconomic Forecast - April 2024
Summary of the Forecast
Last year, the Czech economy teetered on the edge of recession. Gross domestic product fell by 0.3% in 2023, but is forecast to grow by 1.4% this year and 2.6% next year. Inflation will stay below 3% for most of 2024, before falling towards 2% in 2025. Thanks to continued strong labour demand and falling inflation, real wage growth will resume. Economic growth in the euro area will remain subdued this year but could accelerate to 1.4% next year.
Real gross domestic product of the Czech Republic, adjusted for seasonal and calendar effects, increased by 0.4% QoQ in Q4 2023. Economic output has still not surpassed the pre-pandemic level.
For the full year 2023, GDP fell by 0.3%. Households were struggling with high inflation, so their real consumption fell further. Investment activity was affected by economic problems in euro area countries and restrictive monetary conditions, but public spending and projects co-financed by EU funds, mainly from the previous financial perspective, had a positive impact. Weaker year-on-year inventory accumulation slowed the economy noticeably. This factor, together with the unwinding of problems in supply chains, boosted exports, while imports declined slightly due to generally weak domestic demand. The contribution of the external trade balance to GDP growth was thus significantly positive.
In 2024, the economic output could increase by 1.4%, mainly due to renewed growth in household consumption and a softer decline in gross capital formation. However, the effects of the consolidation package will dampen economic activity slightly, but this will also help to reduce inflationary pressures. In 2025, GDP could grow by 2.6% on the back of stronger momentum in all components of domestic demand and more favourable economic developments abroad.
Annual inflation had reached the Czech National Bank’s inflation target for the first time in three years at the beginning of this year and should remain below the upper boundary of the tolerance band throughout the year, with the exception of the last quarter. The previously strong inflationary external supply factors have weakened significantly and domestic demand pressures will be further dampened by higher monetary policy rates during the year, which is further supported by the restrictive effects of the fiscal consolidation package. The average inflation rate could thus fall to 2.7% this year and 2.4% in 2025.
Labour market imbalances related to labour shortages continue to manifest themselves. As a result, despite the weak economic momentum, the unemployment rate should not rise much in 2024. It could increase from 2.6% in 2023 to 2.8% this year, before declining slightly in 2025 thanks to economic growth. The persistent tensions in the labour market will not allow nominal wage growth to slow significantly. Earnings will also rise in real terms after two years of decline.
The current account of the balance of payments recorded a slight surplus of 0.4% of GDP in 2023. The strong year-on-year improvement in the balance was driven by lower outflows of investment income (mainly in the form of dividends) on the primary income balance. Through a decline in imports, the easing of price pressures in the industry and energy sectors led to a return of the trade balance to positive values. Going forward, these factors should continue to be relevant. We therefore estimate that the current account will reach a surplus of 0.6% of GDP this year, which could increase to 0.7% of GDP in 2025.
Public finances were running a deficit of 3.3% of GDP in 2023, reflecting exceptional revenue and expenditure related to the energy crisis, inflation-driven mandatory social spending and continued assistance to Ukrainian refugees. However, the structural deficit decreased year-on-year due to the exceptional nature of some items. Debt declined slightly to 44.0% of GDP at the end of last year. The government’s consolidation package, a minimum of one-off or temporary measures and the economic recovery should reduce the deficit by 1pp to 2.3% of GDP this year, despite increased spending on defence or pensions. Against the backdrop of lower nominal GDP growth, the debt ratio should reach 45.5% of GDP.
In aggregate, we consider the risks to the forecast to be skewed to the downside. Economic activity in some sectors of the economy (especially in the automotive industry) may be dampened by renewed problems in supply chains, e.g. in connection with the situation in the Middle East. Apart from the negative impact on economic performance, supply-side problems would create additional inflationary pressures. These could also be triggered by an increase in energy commodity prices in the event of an escalation of geopolitical tensions. The ability to compensate for the shortfall in natural gas and oil supplies from Russia to the EU with increased imports from other suppliers and savings on the demand side remains a risk. Inflation expectations are also a risk for the Czech economy. Economic growth is supported by the integration of refugees from Ukraine into the labour market, and the full use of their human capital could boost labour productivity.
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2023 | 2024 | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Current forecast | Previous forecast | |||||||||
| Nominal GDP | bill. CZK | 5 791 | 5 709 | 6 109 | 6 787 | 7 344 | 7 657 | 8 032 | 7 351 | 7 640 |
| nominal growth in % | 7,0 | -1,4 | 7,0 | 11,1 | 8,2 | 4,3 | 4,9 | 8,3 | 3,9 | |
| Gross domestic product | real growth in % | 3,0 | -5,5 | 3,6 | 2,4 | -0,3 | 1,4 | 2,6 | -0,6 | 1,2 |
| Consumption of households | real growth in % | 2,7 | -7,2 | 4,1 | -0,6 | -3,1 | 2,7 | 3,5 | -3,2 | 2,6 |
| Consumption of government | real growth in % | 2,5 | 4,2 | 1,4 | 0,3 | 3,5 | 1,6 | 2,2 | 3,1 | 1,6 |
| Gross fixed capital formation | real growth in % | 5,9 | -6,0 | 0,8 | 3,0 | 4,0 | 2,2 | 2,4 | 2,0 | 1,2 |
| Contribution of net exports | pp | 0,0 | -0,4 | -3,6 | 0,9 | 2,6 | 0,2 | 0,4 | 1,7 | 0,7 |
| Contrib. of change in inventories | pp | -0,3 | -0,9 | 4,8 | 0,9 | -3,3 | -1,0 | -0,5 | -2,0 | -1,4 |
| GDP deflator | growth in % | 3,9 | 4,3 | 3,3 | 8,5 | 8,6 | 2,9 | 2,2 | 8,9 | 2,8 |
| Average inflation rate | % | 2,8 | 3,2 | 3,8 | 15,1 | 10,7 | 2,7 | 2,4 | 10,7 | 3,1 |
| Employment (national accounts) | growth in % | 0,2 | -1,7 | 0,4 | 1,5 | 0,8 | 0,4 | 0,2 | 0,8 | 0,5 |
| Unemployment rate (LFS) | average in % | 2,0 | 2,6 | 2,8 | 2,2 | 2,6 | 2,8 | 2,7 | 2,6 | 2,8 |
| Wage bill (domestic concept) | growth in % | 7,8 | 0,1 | 5,9 | 9,3 | 7,9 | 6,8 | 5,5 | 8,4 | 6,6 |
| Current account balance | % of GDP | 0,3 | 2,0 | -2,8 | -4,9 | 0,4 | 0,6 | 0,7 | -0,2 | 0,4 |
| General government balance | % of GDP | 0,3 | -5,8 | -5,1 | -3,2 | -3,3 | -2,3 | -2,1 | -3,6 | -2,2 |
| General government debt | % of GDP | 30,0 | 37,7 | 42,0 | 44,2 | 44,0 | 45,5 | 46,4 | 43,7 | 45,6 |
| Assumptions: | ||||||||||
| Exchange rate CZK/EUR | 25,7 | 26,4 | 25,6 | 24,6 | 24,0 | 25,1 | 24,7 | 24,0 | 24,4 | |
| Long-term interest rates | % p.a. | 1,5 | 1,1 | 1,9 | 4,3 | 4,4 | 3,7 | 3,4 | 4,4 | 3,8 |
| Crude oil Brent | USD/barrel | 64 | 42 | 71 | 101 | 82 | 84 | 78 | 82 | 78 |
| GDP in the euro area | real growth in % | 1,6 | -6,2 | 5,9 | 3,5 | 0,5 | 0,5 | 1,4 | 0,5 | 0,7 |
Tables and Graphs
Preparation of the Macroeconomic Forecasts
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Updated: 10.4.2024
Information
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The Macroeconomic Forecast is prepared by the Economic Policy Department of the Czech Ministry of Finance. It contains forecast for the years 2024 and 2025, and for certain indicators an outlook for the 2 following years (i.e. until 2027). 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 28 March 2024.