Macroeconomic Forecast - January 2025
Summary of the Forecast
English version of the January Macroeconomic Forecast will be released in the week of 3 February.
Global economic growth is supported by weakening inflation, which is boosting household consumption spending, although consumer confidence in many countries has not yet returned to pre-pandemic levels. In contrast, the restrictive effect of real interest rates continues to limit investment activity. Despite some improvement, the problems in the Chinese real estate sector are also having a negative impact, but their effect is mitigated by supportive fiscal and monetary measures. GDP growth in the euro area will remain subdued this year despite a modest recovery.
Economic development is burdened by a high degree of risk, particularly in connection with trade and geopolitical tensions. It is difficult to predict whether and to what extent tariffs on goods imported into the United States will be increased or whether further protectionist measures will be taken. The baseline scenario of the macroeconomic forecast is based on the assumption that there will be no macroeconomically significant escalation of trade disputes, but the forecast is complemented by an analysis of the impact on the Czech economy of imposing tariffs of 10% on goods imported from the European Union to the United States.
Real gross domestic product growth in the Czech Republic accelerated to 0.5% QoQ and 1.4% YoY in Q3 2024 (seasonally and calendar adjusted).
For the full year 2024, GDP was likely to increase by 1.1%. The unwinding of high inflation has translated into an increase in households' real disposable income and consumption expenditure. A slight weakening of investment activity and a decline in inventories held back import dynamics, thus the trade balance supported economic growth. In 2025, economic growth is expected to be boosted mainly by household consumption and investment spending, and GDP could be 2.3% higher YoY.
The average inflation rate in 2024 was 2.4%. Inflationary pressures were significantly lower last year than in the previous two years. Inflationary external supply factors weakened markedly and domestic demand pressures were further dampened by higher monetary policy rates, with the restrictive effect of the fiscal consolidation package adding to the effect. This year, the average inflation rate is expected to fall further slightly to 2.3%. Inflationary pressures will continue to be moderated by restrictive monetary policy through interest rates, supported by the expected decline in the dollar oil price and a slight appreciation of the koruna against the euro. Conversely, inflationary factors are represented by continued higher wage growth, the weakening of the koruna against the dollar, as well as increased price dynamics in services, including renewed growth in imputed rent.
Labour market imbalances related to labour shortages continue to manifest themselves. As a result, the unemployment rate could remain at 2.6% in 2024 despite the weak economic momentum. It could fall slightly to 2.5% this year thanks to economic growth. The persistent labour market tightness will not allow a significant slowdown in wage and salary growth. Real earnings should increase last year and this year.
The current account of the balance of payments ended with a surplus of 1.2% of GDP in Q3 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 import of energy commodities and weaker domestic investment activity. The improvement in the current account balance was offset by higher investment income outflows (mainly in the form of dividends). Meanwhile, these factors should continue to guide the end of last year. We therefore estimate that the current account ended 2024 in surplus at 1.0% of GDP, and could turn into a slight deficit of 0.2% of GDP this year due to the recovery in domestic demand.
The general government sector is expected to end 2024 with a deficit 1 pp lower 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 is expected this year, bringing the deficit down to 2.3% of GDP. With lower nominal GDP growth, general government debt is projected to reach 43.4% of GDP last year and further increase to 44.3% 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 performance, supply-side problems would create additional inflationary pressures. These could also be triggered by a rise 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 involvement of refugees from Ukraine in the labour market, and the full use of their human capital could then 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 | 8 007 | 8 431 | 7 988 | 8 410 |
| nominal growth in % | 7,5 | -1,0 | 8,2 | 11,8 | 8,1 | 5,1 | 5,3 | 4,8 | 5,3 | |
| Gross domestic product | real growth in % | 3,6 | -5,3 | 4,0 | 2,8 | -0,1 | 1,1 | 2,3 | 1,1 | 2,5 |
| Consumption of households | real growth in % | 3,1 | -6,4 | 4,2 | 0,5 | -2,8 | 1,8 | 3,4 | 1,9 | 3,7 |
| Consumption of government | real growth in % | 2,6 | 4,1 | 1,5 | 0,4 | 3,4 | 3,8 | 1,8 | 3,7 | 1,8 |
| Gross fixed capital formation | real growth in % | 7,5 | -4,8 | 6,7 | 6,3 | 2,5 | -0,1 | 2,8 | 0,9 | 3,6 |
| Contribution of net exports | pp | 0,1 | -0,6 | -2,8 | -0,3 | 2,6 | 0,7 | -1,3 | 0,9 | -1,3 |
| Contrib. of change in inventories | pp | -0,4 | -1,2 | 2,8 | 1,2 | -2,7 | -1,1 | 0,9 | -1,6 | 0,7 |
| GDP deflator | growth in % | 3,8 | 4,5 | 4,0 | 8,7 | 8,1 | 4,0 | 3,0 | 3,7 | 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 | 2,6 | 2,5 |
| Wage bill (domestic concept) | growth in % | 7,9 | 0,4 | 7,2 | 9,1 | 7,7 | 6,4 | 6,3 | 6,2 | 6,3 |
| Current account balance | % of GDP | 0,3 | 1,8 | -2,1 | -4,7 | 0,3 | 1,0 | -0,2 | 1,4 | 0,0 |
| General government balance | % of GDP | 0,3 | -5,6 | -5,0 | -3,1 | -3,8 | -2,8 | -2,3 | -2,8 | -2,3 |
| General government debt | % of GDP | 29,6 | 36,9 | 40,7 | 42,5 | 42,4 | 43,4 | 44,3 | 43,9 | 44,8 |
| Assumptions: | ||||||||||
| Exchange rate CZK/EUR | 25,7 | 26,4 | 25,6 | 24,6 | 24,0 | 25,1 | 25,1 | 25,1 | 24,9 | |
| Long-term interest rates | % p.a. | 1,5 | 1,1 | 1,9 | 4,3 | 4,4 | 4,0 | 3,7 | 3,9 | 3,5 |
| Crude oil Brent | USD/barrel | 64 | 42 | 71 | 101 | 82 | 81 | 73 | 81 | 72 |
| GDP in the euro area | real growth in % | 1,6 | -6,2 | 6,3 | 3,6 | 0,5 | 0,7 | 1,0 | 0,8 | 1,2 |
Tables and Graphs
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Updated: 30.1.2025
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 year 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: TThe Macroeconomic Forecast is based on data known as of 14 January 2025.