Fiscal Outlook of the Czech Republic (November 2014)

Dept 37 - Economic Policy Department
Dept 37 - Economic Policy Department


  • Fiscal Data
  • Fiscal Outlook
  • Macroeconomic Forecast

ISSN 1804‐7998

The current issue of the Fiscal Outlook is falling within a relatively specific period characterised by several factors. The first one is the submitted Act on State Budget that is the first budget drawn up by the government coalition of CSSD, ANO 2011 and KDU-CSL that has been ruling since the end of January 2014. The budget reflects the programme priorities of the government and sets up budgetary and fiscal policy for the future years of its term of office. The second important factor is the change in the sphere of statistical indicators with the transition from the ESA 95 methodology to the ESA 2010 methodology as part of the standard of the European system of national and regional accounts. Apart from some changes in the structure of macroeconomic aggregates, this transition also brings a change in the level of individual quantities. For example, the gross domestic product for 2013 is approximately 5% higher compared to the previous methodology. With respect to the transition to the ESA 2010 methodical standard, the current data are not directly comparable with those in the previous issues of the Fiscal Outlook.

Another important event for the Czech public finances is the fact that on 20 June 2014 the Council of the EU decided to abrogate the excessive deficit procedure. The procedure that was initiated with the Czech Republic in December 2009 when the CR reached the general government deficit of 5.5% of GDP due to the global recession. Thanks to relatively great fiscal efforts (i.e. a change in the structural balance) in the average amount of 1.1% of GDP annually, the excessive deficit was removed until 2013, however at the expense of deeper negative output gap.

From the perspective of the macroeconomic development in the horizon of the following three years we expect that after two years of slight decreases the economy will reach real growth of 2.4% in 2014 and will basically maintain this dynamics for the remaining part of the forecast horizon. Consumption and investments should mainly participate in GDP growth, contribution of foreign trade should be non-zero as late as in 2016 and 2017. The currently still negative output gap could be closed under this scenario already in 2015 and for the remaining part of the forecast the economy could remain above its potential.

The submitted Fiscal Outlook is based on the Macroeconomic Forecast of October 2014 of the Ministry of Finance and the draft state budget and state funds budgets for 2015, including the draft medium-term budgetary outlook until 2017. The budget documents reflect the programme of the coalition government of CSSD, ANO 2011 and KDU-CSL, in particular pro-growth orientation of the economic policy. Nevertheless, everything is subordinated to the target to keep the general government balance safely above the limit value of −3% of GDP. For 2015, we estimate the total balance to be −2.2% of GDP and this indicator should gradually be improving with economic recovery.

The current Fiscal Outlook traditionally includes a thematic chapter. This time, it covers update of long-term pension projections of the CR with respect to the fact that the Population Ageing Report for 2015 will be published next year for which these projections were primarily prepared. Thereby we continue in the subject from the Fiscal Outlook of October 2009 and the Information Study of the MF 2/2012 (Marval J., Štork, Z. 2012) where we also covered the mentioned subject.