IMF Downgrades Economic Forecast For Czech Republic

Published: 08.12.2021 Related countries:  Sweden Sweden

The Czech economy will grow by 2.6 percent this year and growth will accelerate to 3.5 percent next year, whihc is less the it was predicted.

The economy growth forecast follows the conclusions of the regular mission of the International Monetary Fund (IMF) in the Czech Republic. In October, the fund expected growth of 3.8 percent this year in the case of the Czech economy and 4.5 percent next year. According to the IMF, inflation will continue to rise next year due to the development of pressures on the labor and real estate markets, rising energy prices and disrupted global chains. Therefore, according to the IMF report, it also supports the CNB’s current stance on monetary policy and its approach to combating rising inflation. However, according to the IMF, the CNB should carefully consider potential risks when considering further rate increases.

According to the IMF, too fast a rise in rates could jeopardize the economic recovery. Conversely, raising rates too slowly may lead to inflationary expectations not being anchored.

In the case of budgetary policy, the IMF considers it appropriate to gradually reduce support programs. At the same time, however, the government’s policy should remain flexible due to uncertainty about further developments.

In the case of the banking sector, the mission noted that it remained very well capitalized and profitable. At the same time, however, he sees the provision of mortgages as a risk to the stability of the IMF sector. With an unexpected shock affecting property prices or household incomes, many people could run into problems with their repayments.

The IMF sees tightening the limits on mortgage lending as an appropriate response. The CNB Board will discuss this on Thursday, and many economists expect the limits to be tightened. The IMF mission is held annually and is mandatory for all Member States. In the Czech Republic, the mission took place this year in the so-called hybrid regime from 8 to 22 November. The mission is the main tool for exercising the IMF’s oversight function, with the final report aiming at an independent assessment of the country.

The material was brought up by employees of CzechTrade Scandinavia.

Using the source: William Malcolm, Prague Business Journal

Photo: Archiv CzechTrade