Macroeconomic Forecast - January 2017

ISSN 2533-5588

Summary of the Forecast

In accordance with our expectations, economic growth in the Czech Republic slowed down in the third quarter of 2016. Real GDP increased only by 0.2% QoQ (seasonally adjusted), which was the lowest growth rate since the first quarter of 2014. In comparison with the same period of the previous year, real GDP rose by 1.6%. The slowdown of growth was caused mainly by one-off factors.

On the demand side, it was in particular the development of foreign trade. The YoY growth of real exports of goods and services slowed down from 7.9% in the second quarter of 2016 to 1.1%. Imports also saw a similar change in dynamics, and the contribution of net exports to GDP growth thus decreased from 2.1 pp to 0.5 pp in the third quarter. Slowdown of growth of domestic demand from 1.6% to 1.1%, to which government consumption contributed the most, was less marked. Investment of the general government sector decreased by more than one fourth in comparison with a very high base of the extraordinary year 2015. Conversely, an increase in investment activity in the non-financial corporations sector can be seen as a very positive phenomenon.

On the supply side, the YoY growth of gross value added in the third quarter of 2016 slowed down to 1.3%. The slowdown applied, with different degrees of intensity, to all sectors of the economy with the exception of financial and insurance activities, real estate activities and agriculture. A YoY decline was recorded in construction, which has been facing long-term problems, and in non-manufacturing industry, i.e. in mining and quarrying, electricity supply (where temporary shutdowns of nuclear power plants have apparently been reflected), and water supply.

However, we consider most of these factors to be one-off events. Therefore, we do not expect this rather poor performance to repeat also in the fourth quarter of 2016. Confidence indicators and the Purchasing Managers’ Index, industrial production and retail sales point to stronger economic growth for this period.

This leads to a slight increase in the estimate of real GDP growth in 2016 from 2.4% to 2.5%.

This year, the main change in comparison with 2016 will be, on the side of domestic demand, renewed growth in gross fixed capital formation. A gradual start of drawing of EU funds from the 2014–2020 programming period will support not only government but also private investment. Investment of the general government sector could thus increase again after a deep slump in 2016, whereas private investment growth should slightly accelerate. Along with a slowdown in the growth of exports, the dynamics of investment, which is the most import-intensive component of domestic demand, will be reflected in a reduction in the contribution of net exports to GDP growth.

Good labour market situation coupled with a relatively fast growth in wages should lead, despite higher expected inflation, to favourable developments of household consumption.

Prices of crude oil and mineral fuels, which can be expected to continue to increase, will probably weigh on economic growth. The expected discontinuation of the CNB‘s exchange rate commitment will be probably associated with a certain strengthening of the real exchange rate.

The forecast for real growth in 2017 is also slightly raised from 2.5% to 2.6%. In 2018, real GDP should increase by 2.4%.

For most of 2016, economic growth was accompanied by very low inflation. However, this changed in the last two months of the year. In December 2016, the YoY growth in consumer prices unexpectedly accelerated to 2.0% and inflation thus reached the CNB‘s inflation target. The acceleration of inflation was driven mainly by prices of food and fuel, which reflected the increasing prices of crude oil. The anti-inflationary effect of the decrease in prices of imported goods has declined significantly.

This acceleration of growth of consumer prices leads to an increase in the forecast for the average inflation rate in 2017 from 1.2% to 2.0%. The inflation rate is expected to reach 1.6% in 2018.

On the labour market, the economic growth is reflected in the dynamic development of all important indicators. Employment grew by strong 1.8% YoY in the third quarter. The seasonally adjusted unemployment rate (LFS) decreased further to 3.7% in November 2016 and it has been the lowest in the whole EU since the beginning of 2016. Low unemployment and certain mismatches between the supply of and demand for labour are reflected in fast growth of real wages and unit labour costs.

The unemployment rate (LFS) is probably already very close to its natural rate, and has therefore very limited room for further decline. For this reason, neither the estimate for the year 2016 (4.0%) nor the forecast for 2017 (3.9%) have changed. The forecast for 2018 is also 3.9%.

Since 2014, the current account of the balance of payments has been reaching steadily increasing surplus. In the third quarter of 2016, it reached 1.9% of GDP (in annual terms), and was therefore again the highest in the history of the independent Czech Republic. The surpluses on the balance of goods and services are thus already apparently exceeding the primary income deficit, which is mostly influenced by an outflow of income from foreign direct investment in the form of dividends and reinvested earnings.

The expected higher prices of mineral fuels, lower export market growth and more accurate data for the past lead to a downward revision of the forecast for the surplus of the current account of the balance payments. The forecast for 2016 is lowered from 2.3% of GPD to 2.1% of GDP, the forecast for 2017 from 1.8% of GDP to 1.2% of GDP. For 2018 a surplus of 1.3% of GDP is forecasted.


Table: Main Macroeconomic Indicators
  2012 2013 2014 2015 2016 2017 2018 2016 2017
Current forecast Previous forecast
Gross domestic product bill. CZK 4 060 4 098 4 314 4 555 4 719 4 885 5 082 4 703 4 864
Gross domestic product growth in %, -0,8 -0,5 2,7 4,5 2,5 2,6 2,4 2,4 2,5
Consumption of households growth in %, -1,2 0,5 1,8 3,0 2,7 2,4 2,4 2,5 2,8
Consumption of government growth in %, -2,0 2,5 1,1 2,0 2,0 1,6 1,4 2,3 1,6
Gross fixed capital formation growth in %, -3,1 -2,5 3,9 9,0 -2,4 3,8 3,0 -3,6 2,8
Net exports contr. to real GDP growth, pp 1,3 0,1 -0,5 0,1 1,1 0,2 0,3 1,3 0,2
Change in inventories contr. to real GDP growth, pp -0,2 -0,7 1,1 0,3 0,4 0,0 0,0 0,4 0,0
GDP deflator growth in % 1,5 1,4 2,5 1,0 1,1 0,9 1,6 0,8 0,9
Average inflation rate % 3,3 1,4 0,4 0,3 0,7 2,0 1,6 0,5 1,2
Employment (LFS) growth in % 0,4 1,0 0,8 1,4 1,8 0,3 0,3 1,6 0,3
Unemployment rate (LFS) average in % 7,0 7,0 6,1 5,1 4,0 3,9 3,9 4,0 3,9
Wage bill (domestic concept) growth in %, 2,6 0,5 3,6 4,4 5,6 5,0 4,5 5,4 5,0
Current account balance % of GDP -1,6 -0,5 0,2 0,9 2,1 1,2 1,3 2,3 1,8
General government balance % of GDP -3,9 -1,2 -1,9 -0,6 0,5 . . -0,2 -0,2
Exchange rate CZK/EUR   25,1 26,0 27,5 27,3 27,0 26,9 26,3 27,0 26,9
Long-term interest rates % p.a. 2,8 2,1 1,6 0,6 0,4 0,6 1,1 0,4 0,6
Crude oil Brent USD/barrel 112 109 99 52 44 57 57 44 51
GDP in Eurozone growth in %, -0,9 -0,3 1,2 2,0 1,6 1,4 1,6 1,4 1,1

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: 30.1.2017


  • The Macroeconomic Forecast is prepared by the Economic Policy Department of the Czech Ministry of Finance. It contains a forecast for the current and the following year (i.e. until 2018) and for certain indicators an outlook for another 2 years (i.e. until 2020). It is published on a quarterly basis (usually in January, April, July and November).
  • 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)
  • Cut-off Date for Data Sources:
    The forecast was made on the basis of data known as of 12 January 2017.

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