Macroeconomic Forecast - August 2024
Summary of the Forecast
Global economic growth remains constrained by restrictive monetary policy and heightened geopolitical instability. International trade is hampered by logistical problems due to ongoing armed conflicts and the associated lengthening of delivery times. Economic growth in the euro area will remain subdued this year but could accelerate to 1.3% next year.
The Czech economy stagnated last year. Gross domestic product fell by 0.1%, but is forecast to grow by 1.1% this year and 2.7% next year. Annual inflation is expected to be close to 2% over the forecast horizon. Real wages will rise thanks to continued strong labour demand and a fall in inflation.
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 0.3% QoQ and by 0.4% YoY in Q2 2024. In Q1 2024, for which detailed data on the structure of growth are available, GDP fell by 0.2% YoY (unadjusted). Revised national accounts data show that economic output surpassed the pre-pandemic level already in Q2 2022, but since then the Czech economy has more or less stagnated.
GDP could increase by 1.1% in 2024, mainly thanks to renewed growth in household consumption. The external trade balance should also provide a significant boost to the economy, mainly due to a weakening of import-intensive investment demand and expected inventory developments. In 2025, the Czech economy could grow by 2.7% thanks to stronger consumption and investment dynamics and more favourable economic developments abroad, but a more robust recovery in domestic demand will also support imports.
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 within the tolerance band for the rest of the year. Inflationary external supply factors have weakened significantly while domestic demand pressures are further dampened by higher monetary policy rates, aided this year by the restrictive effects of the fiscal consolidation package. The average inflation rate could thus fall to 2.4% this year and further to 2.3% in 2025.
Labour market imbalances related to labour shortages continue to manifest themselves. Thus, despite the weak economic dynamics, the unemployment rate should not increase much in 2024. From 2.6% in 2023, it could rise to 2.8% this year and fall slightly to 2.7% next year thanks to economic growth. The persistent labour market tightness 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 ended with a surplus of 1.3% of GDP in Q1 2024. The significant year-on-year improvement in the external balance was mainly due to an increase in the surplus on the goods balance, driven on the import side by the unwinding of price pressures in the industry and energy sectors and weak investment activity in Q1 2024. On the primary income balance, investment income outflows (mainly in the form of dividends) decreased. Meanwhile, these factors should continue to be relevant over the course of this year. We therefore expect the current account to reach a surplus of 1.6% of GDP this year, which will fall to 0.1% of GDP in 2025 due to the recovery in domestic demand.
The general government sector is expected to end 2024 with a deficit of 2.5% of GDP, down by 1.3pp year-on-year, despite increased defence and pension spending. This will be supported by the government’s consolidation package, the waning measures related to the energy crisis and the economic recovery. Amid lower nominal GDP growth, the government debt is expected to reach 43.7% of GDP.
In aggregate, we consider the risks to the macroeconomic forecasts to be skewed to the downside. Economic activity in some sectors of the economy may be dampened by renewed problems in supply chains, e.g. in relation to the situation in the Middle East. In addition to 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, or by the introduction or increase in tariffs or other barriers to foreign trade. Given the significant trade links between the Czech and German economies, we also consider structural problems and weak economic growth in Germany to be a downside risk to the forecast. The ability to compensate for reduced imports of natural gas and oil from Russia into the European Union with increased imports from other suppliers and demand-side measures remains a risk. The persistence of prices in services and the evolution of inflation expectations are also risks for the Czech economy. Economic growth is supported by the participation of refugees from Ukraine in the labour market, and the full use of their human capital could boost labour productivity.
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2024 | 2025 | ||
|---|---|---|---|---|---|---|---|---|---|---|
| Current forecast | Previous forecast | |||||||||
| Nominal GDP | bill. CZK | 5 889 | 5 828 | 6 308 | 7 050 | 7 619 | 7 960 | 8 393 | 7 657 | 8 032 |
| nominal growth in % | 7,5 | -1,0 | 8,2 | 11,8 | 8,1 | 4,5 | 5,4 | 4,3 | 4,9 | |
| Gross domestic product | real growth in % | 3,6 | -5,3 | 4,0 | 2,8 | -0,1 | 1,1 | 2,7 | 1,4 | 2,6 |
| Consumption of households | real growth in % | 3,1 | -6,4 | 4,2 | 0,5 | -2,8 | 2,1 | 3,9 | 2,7 | 3,5 |
| Consumption of government | real growth in % | 2,6 | 4,1 | 1,5 | 0,4 | 3,5 | 2,3 | 2,2 | 1,6 | 2,2 |
| Gross fixed capital formation | real growth in % | 7,5 | -4,8 | 6,7 | 6,3 | 2,5 | -0,5 | 3,6 | 2,2 | 2,4 |
| Contribution of net exports | pp | 0,1 | -0,6 | -2,8 | -0,3 | 2,6 | 1,0 | -1,3 | 0,2 | 0,4 |
| Contrib. of change in inventories | pp | -0,4 | -1,2 | 2,8 | 1,2 | -2,7 | -1,2 | 0,8 | -1,0 | -0,5 |
| GDP deflator | growth in % | 3,8 | 4,5 | 4,0 | 8,7 | 8,2 | 3,4 | 2,7 | 2,9 | 2,2 |
| Average inflation rate | % | 2,8 | 3,2 | 3,8 | 15,1 | 10,7 | 2,4 | 2,3 | 2,7 | 2,4 |
| Employment (national accounts) | growth in % | -0,1 | -2,3 | 1,0 | 1,0 | 1,0 | 0,3 | 0,2 | 0,4 | 0,2 |
| Unemployment rate (LFS) | average in % | 2,0 | 2,6 | 2,8 | 2,2 | 2,6 | 2,8 | 2,7 | 2,8 | 2,7 |
| Wage bill (domestic concept) | growth in % | 7,9 | 0,4 | 7,2 | 9,1 | 7,7 | 7,1 | 6,4 | 6,8 | 5,5 |
| Current account balance | % of GDP | 0,3 | 2,0 | -2,7 | -4,7 | 0,4 | 1,6 | 0,1 | 0,6 | 0,7 |
| General government balance | % of GDP | 0,3 | -5,6 | -5,0 | -3,1 | -3,8 | -2,5 | . | -2,3 | -2,1 |
| General government debt | % of GDP | 29,6 | 36,9 | 40,7 | 42,5 | 42,4 | 43,7 | . | 45,5 | 46,4 |
| Assumptions: | ||||||||||
| Exchange rate CZK/EUR | 25,7 | 26,4 | 25,6 | 24,6 | 24,0 | 25,1 | 24,9 | 25,1 | 24,7 | |
| Long-term interest rates | % p.a. | 1,5 | 1,1 | 1,9 | 4,3 | 4,4 | 3,9 | 3,6 | 3,7 | 3,4 |
| Crude oil Brent | USD/barrel | 64 | 42 | 71 | 101 | 82 | 82 | 75 | 84 | 78 |
| GDP in the euro area | real growth in % | 1,7 | -6,2 | 6,0 | 3,5 | 0,5 | 0,8 | 1,3 | 0,5 | 1,4 |
Tables and Graphs
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Updated: 22.8.2024
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 12 August 2024.