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The Czech economy grew by 0.2% year-on-year

Central European economies, including the Czech Republic, are bouncing back from last year’s inflation surge, which had severely dampened consumer activity.

Renewed consumer spending is helping to balance weaker factory activity. The Czech economy grew by 0.2% year-on-year and 0.3% from the last quarter of 2023, although final figures came in slightly below early estimates. Household consumption and external demand were the main drivers, contributing 1.2 and 2.1 percentage points to annual growth, respectively. However, gross capital formation dragged on growth due to lower investments in housing, IT, and machinery.

The survey of macroeconomic forecasts (the so-called Colloquium) is carried out by the Ministry of Finance of the Czech Republic (MoF) and based on the forecasts of 16 institutions. As per this survey (May 2024), on average, respondents expect the Czech economy to grow by 1.3% this year. Real household consumption could rise by 2.4% after two years of decline, thanks to a significant reduction in inflation, developments on the labour market and a strengthening of consumer confidence at the start of the year.

Reflecting the consolidation of public finances, the growth rate of government consumption should slow to 1.6%. The transition to the new EU multiannual financial framework should have a negative impact on investment growth, which is expected to slow to 2.9%. The change in inventories should continue to hold back economic growth (by 1.9pp), although not as strongly as in 2023.

At the same time, the positive contribution of net exports should decrease (to 1.1pp).

Survey states that economic growth should accelerate to 2.6% in 2025 thanks to more favourable developments in all components of domestic demand, especially household consumption. The combined effect of the change in inventories and the external trade balance on GDP growth could already be almost neutral.

On average, the participating institutions expect the inflation rate to fall significantly to 2.5% this year. The average inflation rate should fall further to 2.1% in 2025. Easing inflationary pressures will allow the Czech National Bank to continue cutting interest rates.

According to the respondents, the unemployment rate is expected to rise to 2.9% on average this year before declining slightly to 2.8% in 2025. Changes in employment should be very small, with institutions expecting an average increase of only 0.1% this year; in 2025, employment could increase by 0.2%.

On average, respondents expect wages and salaries to increase by 6.2% this year, while growth in this highly significant budget indicator could slow to 5.6% in 2025 (Ministry of Finance of The Czech Republic, Survey of Macroeconomic forecasts).

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Source: Ministry of Finance of CR