Macroeconomic Forecast - November 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. The world economy is therefore expected to slow down this year. Growth momentum is also hampered by persistent problems in the Chinese real estate sector and low consumer confidence. It is China’s weak domestic demand that is having a negative impact on export-oriented European economies. Economic growth in the euro area will remain lacklustre next year despite a modest recovery.
The Czech economy stagnated in 2023. Gross domestic product fell by 0.1%, but is forecast to grow by 1.1% this year and by 2.5% in 2025. Annual inflation is expected to be close to 2%, except for the end of this year. Real wages will rise thanks to continued strong labour demand and the decrease in inflation.
According to the flash 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 1.3% YoY in Q3 2024. In Q2 2024, for which detailed data on the structure of growth are available, GDP grew by 0.9% YoY (unadjusted).
GDP could increase by 1.1% in 2024, mainly thanks to renewed growth in household consumption. The external trade balance is also expected to provide a significant boost to the economy, mainly due to weaker dynamics of import-intensive investment demand and expected development of inventories. In 2025, the Czech economy could grow by 2.5% thanks to stronger consumption and investment and more favourable economic developments abroad, but a more robust recovery in domestic demand will also support imports.
After three years, annual inflation had reached the vicinity of the Czech National Bank’s 2% inflation target at the beginning of this year and should remain within the tolerance band over the forecast horizon except for the very end of this year. Inflationary external supply factors have weakened considerably, while domestic demand pressures are further suppressed by elevated monetary policy rates, supported 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. Despite the weak economic momentum, the unemployment rate could remain at 2.6% in 2024, before falling slightly to 2.5% next year thanks to economic growth. Persistent labour market imbalances will not allow nominal wage growth to slow down significantly. Earnings will also rise in real terms after two years of decline.
The current account of the balance of payments recorded a surplus of 1.4% of GDP in Q2 2024. The significant year-on-year improvement in the external balance was mainly due to an increase in the goods surplus, driven by growth in motor vehicle production, lower imports of energy commodities and weaker domestic investment activity. On the primary income balance, investment income outflows (mainly in the form of dividends) declined. Meanwhile, these factors should continue to be relevant over the course of this year. We therefore expect the current account of the balance of payments to reach a surplus of 1.4% of GDP this year and to be in balance in 2025 due to the recovery in domestic demand.
In 2024, the general government sector deficit is expected to decrease by 1 pp year-on-year, despite increased defence spending, higher pensions and flood damage repair costs. The expected deficit of 2.8% of GDP is reduced by the consolidation package, the winding down of energy crisis-related measures and the economic recovery. Further consolidation of public finances and a reduction of the deficit to 2.3% of GDP are expected next year. With lower nominal GDP growth, general government debt is projected to reach 43.9% of GDP this year and further increase to 44.8% of GDP in 2025.
In aggregate, we consider the risks to the forecast to be skewed to the downside. Economic activity in some sectors of the economy may be dampened by renewed problems in supply chains, for example in the context of the situation in the Middle East. In addition to the negative impact on economic output, 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 persistence of price growth in services and the level 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 | 7 988 | 8 410 | 7 960 | 8 393 |
| nominal growth in % | 7,5 | -1,0 | 8,2 | 11,8 | 8,1 | 4,8 | 5,3 | 4,5 | 5,4 | |
| Gross domestic product | real growth in % | 3,6 | -5,3 | 4,0 | 2,8 | -0,1 | 1,1 | 2,5 | 1,1 | 2,7 |
| Consumption of households | real growth in % | 3,1 | -6,4 | 4,2 | 0,5 | -2,8 | 1,9 | 3,7 | 2,1 | 3,9 |
| Consumption of government | real growth in % | 2,6 | 4,1 | 1,5 | 0,4 | 3,5 | 3,7 | 1,8 | 2,3 | 2,2 |
| Gross fixed capital formation | real growth in % | 7,5 | -4,8 | 6,7 | 6,3 | 2,5 | 0,9 | 3,6 | -0,5 | 3,6 |
| Contribution of net exports | pp | 0,1 | -0,6 | -2,8 | -0,3 | 2,6 | 0,9 | -1,3 | 1,0 | -1,3 |
| Contrib. of change in inventories | pp | -0,4 | -1,2 | 2,8 | 1,2 | -2,7 | -1,6 | 0,7 | -1,2 | 0,8 |
| GDP deflator | growth in % | 3,8 | 4,5 | 4,0 | 8,7 | 8,2 | 3,7 | 2,7 | 3,4 | 2,7 |
| Average inflation rate | % | 2,8 | 3,2 | 3,8 | 15,1 | 10,7 | 2,4 | 2,3 | 2,4 | 2,3 |
| Employment (national accounts) | growth in % | -0,1 | -2,3 | 1,0 | 1,0 | 1,0 | 0,3 | 0,2 | 0,3 | 0,2 |
| Unemployment rate (LFS) | average in % | 2,0 | 2,6 | 2,8 | 2,2 | 2,6 | 2,6 | 2,5 | 2,8 | 2,7 |
| Wage bill (domestic concept) | growth in % | 7,9 | 0,4 | 7,2 | 9,1 | 7,7 | 6,2 | 6,3 | 7,1 | 6,4 |
| Current account balance | % of GDP | 0,3 | 1,8 | -2,1 | -4,7 | 0,3 | 1,4 | 0,0 | 1,6 | 0,1 |
| General government balance | % of GDP | 0,3 | -5,6 | -5,0 | -3,1 | -3,8 | -2,8 | -2,3 | -2,5 | . |
| General government debt | % of GDP | 29,6 | 36,9 | 40,7 | 42,5 | 42,4 | 43,9 | 44,8 | 43,7 | . |
| Assumptions: | ||||||||||
| Exchange rate CZK/EUR | 25,7 | 26,4 | 25,6 | 24,6 | 24,0 | 25,1 | 24,9 | 25,1 | 24,9 | |
| Long-term interest rates | % p.a. | 1,5 | 1,1 | 1,9 | 4,3 | 4,4 | 3,9 | 3,5 | 3,9 | 3,6 |
| Crude oil Brent | USD/barrel | 64 | 42 | 71 | 101 | 82 | 81 | 72 | 82 | 75 |
| GDP in the euro area | real growth in % | 1,6 | -6,2 | 6,3 | 3,6 | 0,5 | 0,8 | 1,2 | 0,8 | 1,3 |
Tables and Graphs
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Updated: 6.11.2024
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 31 October 2024.