Macroeconomic Forecast - April 2015

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

Published

  • Macroeconomic Forecast
  • Statistics

ISSN 1804‐7971

Summary of and Risks to the Forecast

Recovery of the Czech economy gathered momentum in the fourth quarter of 2014. Real gross value added increased by 1.2% QoQ, which was the fastest growth since the first quarter of 2008. Economic growth was driven exclusively by domestic demand, with consumption of households and the government and fixed capital formation all increasing.

Significantly lower dynamics of real GDP1, which rose by 0.4% QoQ, was caused by a one-off drop (on accrual basis) of collection of excise duty on tobacco products. The drop results from introduction of the legal time limit on vending tobacco products with old tax stamps. Effects of this measure have thus no influence on the assessment of the course of the economic recovery.

Economic growth continues under the conditions of almost zero inflation and an improving situation on the labour market. Unemployment rate (LFS) is declining, while the fall in registered unemployment is even more pronounced. For the first time since 1993, the current account of the balance of payments recorded a surplus in 2014.

The economy is stimulated by a couple of one-off factors in 2015. The most important one is a positive supply shock resulting from the low price of oil on commodity markets. We expect the dollar price of Brent crude oil to be almost two fifths lower in 2015 than it was in 2014.

The depreciation of the euro (and thus of the koruna) vis-à-vis the US dollar reduces the impact of the low dollar price of oil. Even so, oil should be cheaper by almost a quarter in koruna terms, compared with 2014.

Another positive factor for the Czech economy is fiscal stimulation, the extent of which can be expressed in terms of fiscal effort (YoY change in the ratio of structural balance to GDP) of the general government sector, which should reach –0.3 pp in 2015. Expansive fiscal policy is further intensified by the effort to draw down maximum possible amount of money from the EU funds from the financial perspective 2007–2013 by the end of 2015.

In the light of these facts, the forecast for real GDP growth in 2015 remains unchanged at 2.7%.

Most of the aforementioned factors are expected to subside in 2016. The price of oil should have a proinflationary impact through its effect on the costs of firms. After the economic fundamentals become more solid and the output gap turns positive there should be no need for a fiscal stimulus and more emphasis should be placed on the reduction of the general government sector deficit. The fact that the drawdown of funds from the financial perspective 2007–2013 is not possible after 2015, and that the drawdown from the perspective 2014–2020 is likely to be gradual, should be one of the major determinants of investment.

For these reasons, we forecast a moderate slowdown of growth to 2.5% in 2016.

In our opinion, risks to the Forecast are tilted to the downside, especially due to the risks that we see in the external environment of the Czech economy.

These are, in the first place, geopolitical risks. The situation in eastern Ukraine has calmed down somewhat since the beginning of the year, but potential escalation of the conflict cannot be excluded entirely. Given the low exposition of Czech firms towards this region, however, the direct macroeconomic impacts on the Czech economy would be rather limited. Instability in the Middle East and Northern Africa could influence the developments on oil and natural gas markets.

The Czech economy could be also indirectly hit if the developments in Greece resulted in a repeated escalation of the crisis in the euro area. The bailout programme was extended until the end of June, but Greece is facing pressing liquidity problems. The negotiations with representatives from the EC, the ECB and the IMF over the measures, the implementation of which would pave the way for the release of the remaining bailout money, have so far failed to bring substantial progress. Moreover, it is still unclear how the situation will evolve after the bailout programme ends. Under current conditions (especially on the government bonds market), Greece is unlikely to manage without further aid.


1 Gross domestic product is the sum of gross value added and indirect taxes net of subsidies.

  

  2010 2011 2012 2013 2014 2015 2016 2014 2015 2016
Current forecast Previous forecast
Table: Main Macroeconomic Indicators
Gross domestic product bill. CZK 3 954 4 022 4 048 4 086 4 266 4 467 4 644 4 284 4 509 4 698
Gross domestic product growth in %, const.pr. 2,3 2,0 -0,8 -0,7 2,0 2,7 2,5 2,4 2,7 2,5
Consumption of households growth in %, const.pr. 1,0 0,2 -1,8 0,4 1,7 2,8 2,3 1,5 2,8 2,3
Consumption of government growth in %, const.pr. 0,4 -2,9 -1,0 2,3 2,3 1,7 1,6 1,9 2,0 1,3
Gross fixed capital formation growth in %, const.pr. 1,3 1,1 -2,9 -4,4 4,5 5,3 4,2 4,5 5,3 4,1
Contr. of foreign trade to GDP growth p.p., const.pr. 0,5 1,9 1,3 0,0 -0,1 -0,3 0,0 -0,2 -0,5 -0,2
Contr. of increase in stocks to GDP growth p.p., const.pr. 0,8 0,2 -0,2 -0,2 -0,3 0,0 0,0 0,3 0,1 0,3
GDP deflator growth in % -1,5 -0,2 1,4 1,7 2,4 1,9 1,4 2,4 2,5 1,6
Average inflation rate % 1,5 1,9 3,3 1,4 0,4 0,3 1,5 0,4 0,3 1,4
Employment (LFS) growth in % -1,0 0,4 0,4 1,0 0,8 0,7 0,2 0,6 0,4 0,2
Unemployment rate (LFS) average in % 7,3 6,7 7,0 7,0 6,1 5,7 5,5 6,1 5,7 5,6
Wage bill (domestic concept) growth in %, curr.pr. 0,6 2,2 2,1 -0,4 3,1 4,0 4,1 3,0 3,9 4,1
Current account balance % of GDP -3,6 -2,1 -1,6 -0,5 0,6 1,3 0,9 -0,2 1,0 0,5
General government balance % of GDP -4,4 -2,7 -3,9 -1,2 -2,0 -1,9 . -1,3 -2,0 .
Assumptions:                      
Exchange rate CZK/EUR   25,3 24,6 25,1 26,0 27,5 27,5 27,5 27,5 27,7 27,6
Long-term interest rates % p.a. 3,7 3,7 2,8 2,1 1,6 0,6 0,8 1,6 1,0 1,6
Crude oil Brent USD/barrel 80 111 112 109 99 60 68 99 54 67
GDP in Eurozone (EA12) growth in %, const.pr. 2,0 1,6 -0,8 -0,4 0,9 1,4 1,8 0,8 1,0 1,5

Tables and Graphs

Preparation of the Macroeconomic Forecast

Updated: 25.07.2013

Evaluation of Forecasting History at the Ministry of Finance

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Updated: 10.04.2015

Information

  • The Macroeconomic Forecast is prepared by the Financial Policy Department of the Czech Ministry of Finance on a quarterly basis. It contains a forecast for the current and following years (i.e. until 2016) and for certain indicators an outlook for another 2 years (i.e. until 2018). As a rule, it is published in the second half of the first month of each quarter.
  • Any comments or suggestions that would help us to improve the quality of our publication and closer satisfy the needs of its users are welcome. Please direct any comments to the following email address: macroeconomic.forecast(at)mfcr.cz
  • Cut-off Date for Data Sources:
    The forecast was made on the basis of data known as of 1 April 2015.