Macroeconomic Forecast - November 2017

ISSN 2533-5588

Summary of the Forecast

After several years of weak economic performance, signs of improvement in the global economy have been emerging since the beginning of the year. The growth rates of global trade and manufacturing are slowly gaining momentum, and confidence indicators in the private sector have strengthened, in many countries even above the pre-crisis level. However, geopolitical risks have also increased considerably. China, where GDP growth in the second quarter of 2017 reached 1.7% QoQ, remains the main driver of economic growth. The economic growth rates in the USA and the Euro Area accelerated to 0.8% and 0.7%, respectively.

Under these conditions, we expect a moderate acceleration in economic growth not only on a global scale, but also of the main trading partners of the Czech Republic. That should be facilitated by further expansion of global trade, higher investment intensity and an improved situation of some commodity exporters. Globally, price pressures in the labour and product markets are still relatively low. If commodity prices do not increase too much, a moderate development of inflation can be expected.

The Czech economy is in an exceptionally good state and benefits from favourable internal as well as external conditions. Economic growth reached record-breaking 2.5% in the second quarter of 2017 in comparison with the previous quarter. In YoY terms, gross domestic product increased by 3.4%, or even 4.7% after seasonal and calendar adjustment (the second quarter of 2017 had 4 more working days YoY). All components of use contributed to this result except for a change in inventories and valuables.

Household consumption was again robust, increasing by 3.8% YoY. The growth in consumption reflected not only high dynamics of employment and wages, but also declining savings rate due to low interest rates and high consumer confidence in further development. An increase in the general government consumption of 1.8% also contributed to the strong economic growth.

At the beginning of 2017 fixed capital investment returned to YoY growth, which accelerated to 5.2% in the second quarter. A positive fact is that private investment and investment of the general government sector grew at almost the same rates.

The contribution of foreign trade to economic growth reached 1.0 pp. It was supported by increasing external demand for automotive products as well as renewed increase in the export performance of the Czech economy.

Confidence indicators, the Purchasing Managers' Index, industrial and construction production as well as retail sales all suggest a continuation of the favourable development in the remainder of 2017.

The positive economic situation should continue also in 2018. Growth should still be driven by household consumption, reflecting wage dynamics amid low unemployment rate, high participation rate and record-high number of job vacancies. Household consumption will be further supported by increases in salaries in the general government sector, reduced tax burden on families with children, and growth in social security spending. Investment should be stimulated not only by funds from the European Structural and Investment Funds but also by decreasing relative cost of capital to the cost of labour at still low real interest rates.

The very good condition of the Czech economy and of the external environment leads to an increase in the forecast for gross domestic product growth from 3.1% to 4.1% in 2017 and from 2.9% to 3.3% in 2018

At the turn of 2016 and 2017, the YoY consumer prices growth accelerated significantly above the inflation target of the Czech National Bank. We expect that inflation will be in the upper half of the inflation target tolerance band also in the next year. Pro-inflationary effects of higher crude oil prices, wage growth and a positive output gap should outweigh anti-inflationary effects stemming from the expected tightening of monetary conditions. These factors lead to a correction of the forecast for the average inflation rate from 2.2% to 2.4% in 2017 and a relatively significant increase from 1.6% to 2.4% in 2018.

In the labour market, the economic boom increases the demand for labour force. High growth in employment, which has steadily exceeded 1% since the end of 2014, exhausts unutilized resources. In August 2017, seasonally adjusted harmonized unemployment rate was 2.9% and it has been the lowest in the entire European Union since the beginning of 2016. Participation growth, supported by demographic factors and increases in the statutory retirement age, has also its limits. On the one hand, lack of employees is becoming a barrier to extensive growth in production, but on the other GDP growth in the first half of 2017 was mainly driven by rising labour productivity.

Since we believe that the current level of unemployment has only very limited room to decline further, we reduce the forecast for the unemployment rate despite a better than estimated development only slightly, from 3.2% to 3.0% in 2017 and from 2.9% to 2.8% in 2018.

The current account of the balance of payments reached a surplus of 0.9% of GDP in the second quarter of 2017. Surpluses on the balances of goods and services apparently exceeded the deficit of primary income, which is mostly influenced by an outflow of income from foreign direct investment in the form of dividends and reinvested earnings. However, a higher domestic demand for imports generated by increased consumption and investment leads to a reduction in the forecast for the surplus on the current account of the balance payments. The forecast for 2017 is reduced from 0.7% of GDP to 0.6% of GDP, and the forecast for 2018 from 0.8% of GDP to 0.5% of GDP.

Change in the forecast for the general government sector balance, which is estimated to reach a surplus of 1.1% of GDP in 2017, reflects the strong dynamics of the Czech economy. Year-to-date data on cash performance of the state budget and budgets of local governments show that the surplus is due primarily to tax revenues, including social security contributions. The surplus should increase to 1.3% of GDP in 2018. We estimate that tax revenues will outweigh the strong growth of compensation of employees and social benefits.



Main Macroeconomic Indicators
  2012 2013 2014 2015 2016 2017 2018 2017 2018
Current forecast Previous forecast
Gross domestic product bill. CZK 4 060 4 098 4 314 4 596 4 773 5 024 5 299 4 993 5 234
Gross domestic product growth in %, -0,8 -0,5 2,7 5,3 2,6 4,1 3,3 3,1 2,9
Consumption of households growth in %, -1,2 0,5 1,8 3,7 3,6 3,9 3,5 2,9 3,1
Consumption of government growth in %, -2,0 2,5 1,1 1,9 2,0 1,9 1,7 1,9 1,7
Gross fixed capital formation growth in %, -3,1 -2,5 3,9 10,2 -2,3 6,2 4,1 3,8 3,5
Net exports contr. to real GDP growth, pp 1,3 0,1 -0,5 -0,2 1,2 0,9 0,3 0,6 0,2
Change in inventories contr. to real GDP growth, pp -0,2 -0,7 1,1 0,8 0,0 -0,5 0,0 -0,1 0,0
GDP deflator growth in % 1,5 1,4 2,5 1,2 1,2 1,1 2,1 1,4 1,8
Average inflation rate % 3,3 1,4 0,4 0,3 0,7 2,4 2,4 2,2 1,6
Employment (LFS) growth in % 0,4 1,0 0,8 1,4 1,9 1,4 0,4 1,4 0,4
Unemployment rate (LFS) average in % 7,0 7,0 6,1 5,1 4,0 3,0 2,8 3,2 2,9
Wage bill (domestic concept) growth in %, 2,6 0,5 3,6 4,8 5,8 7,4 7,6 6,1 5,6
Current account balance % of GDP -1,6 -0,5 0,2 0,2 1,1 0,6 0,5 0,7 0,8
General government balance % of GDP -3,9 -1,2 -1,9 -0,6 0,7 1,1 1,3 0,4 .
Exchange rate CZK/EUR   25,1 26,0 27,5 27,3 27,0 26,4 25,5 26,4 25,6
Long-term interest rates % p.a. 2,8 2,1 1,6 0,6 0,4 0,9 1,5 0,9 1,5
Crude oil Brent USD/barrel 112 109 99 52 44 53 55 49 50
GDP in Eurozone growth in %, -0,9 -0,2 1,3 2,1 1,8 2,1 2,0 1,8 1,8


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: 20.11.2017


  • 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 18 October 2017.

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