Macroeconomic Forecast - April 2023
Introduction and Summary
The pandemic-weakened world economy was hit by several shocks in 2022. The war in Ukraine has reduced global economic growth and intensified inflationary pressures, especially in the case of food and energy prices. In a number of countries, inflation rates in the second half of last year were the highest since the 1980s. Central banks have been responding by gradually raising interest rates. Consumer price growth appears to have already peaked in a number of countries. However, the question remains how quickly will inflation return to close to the inflation targets of individual central banks. In terms of the smooth functioning of global supply chains, further development of the pandemic, particularly in China, is a persistent risk.
In Q4 2022, real gross domestic product of the Czech Republic, adjusted for seasonal and calendar effects, fell by 0.4% QoQ. It was 0.1% higher year-on-year.
Household consumption fell by 5.5% YoY in Q4. Consumer spending was negatively affected not only by the fall in real disposable income, caused by very high inflation, but also by a rise in the savings rate. General government consumption rose by 1.1% due to an increase in public sector employment.
Growth of gross fixed capital formation slowed to 2.7%, with investment in information and communication technology and intellectual property products contributing most to the increase in investment activity. Investment in dwellings fell again, but investment in transport equipment also declined. From the sectoral point of view, privately financed business investment was decisive.
The change in inventories and valuables took 0.2 pp off the growth of the economy. Although firms continued to sharply increase inventories of production inputs in order to avoid losses resulting from high inflation and shortfalls in component supplies (stocks of work in progress and finished goods could also have risen), inventory accumulation fell slightly year-on-year.
The foreign trade balance supported economic growth to the extent of 1.8 pp. In addition to the recovery abroad and the easing of problems in supply chains, the low comparative base also contributed to the almost 10% year-on-year increase in exports. Due to shortages of some components, production in the manufacturing (mainly automotive) sector was curtailed in Q4 2021, which was negatively reflected in the export dynamics at that time.
For the full year 2022, economic output grew by 2.5%, driven by fixed capital investment and increased inventory accumulation. Despite a number of fiscal stimulus measures, household final consumption expenditure declined due to a sharp increase in the cost of living, especially energy and food prices, and tighter monetary policy.
In 2023, GDP could increase by 0.1% (0.3% after adjusting for calendar effects). Households will continue to face the impact of high inflation this year, and their real consumption should fall further. Government consumption and gross fixed capital formation will be pro-growth, but weaker year-on-year inventory accumulation will slow the economy. The impact of generally weak domestic demand will be offset by the external trade balance. Economic growth could accelerate to 3.0% in 2024, mainly driven by renewed growth in household consumption.
High inflation slows down economic growth and lowers living standards. Not only food, electricity, natural gas and imputed rents, but also other categories of goods and services are contributing significantly to the exceptionally strong rise in consumer prices. Domestic demand pressures are also boosting inflation, but these should be dampened by higher monetary policy rates. The appreciation of the koruna is also anti-inflationary. Annual inflation should decline at a fast pace in the first half of this year and reach high single-digit levels in the second half of the year. At the end of the year, the energy tariff will have a year-on-year base effect. Throughout 2024, annual consumer price inflation could already remain within the upper half of the tolerance band of the Czech National Bank's inflation target. The average inflation rate could thus reach 10.9% this year and fall to 2.4% in 2024.
Labour market imbalances related to labour shortages continue to manifest themselves. As a result, despite the mild recession and the generally weak growth momentum, the unemployment rate should not increase much in 2023. It could rise from an average of 2.3% in 2022 to 3.0% this year, but it could already fall to an average of 2.8% next year. The persistent tightness in the labour market will push up wage growth, which will continue to lag behind inflation also this year. Growth of the average real wage should therefore resume only in 2024.
The current account of the balance of payments ended with a significant deficit of 6.1% of GDP in 2022, mainly reflecting a deterioration in the balance of goods due to high energy commodity prices. The current account was also negatively affected by the highest outflow of dividends in primary income ever and a decline in the services surplus due to higher costs in the transport sector. Given the unwinding of price pressures in industry and the energy sector, we estimate that the current account deficit will narrow to 3.5% of GDP this year and further to 1.9% of GDP next year.
In 2022, the deficit in public finances was 1.5 pp lower year-on-year, despite the consequences of the Russian aggression against Ukraine. The deficit of 3.6% of GDP includes not only humanitarian aid and support to economic agents with high prices, but also the effects of measures that significantly and permanently reduced the tax burden during the covid-19 epidemic. The estimate of the 2023 outturn of −3.5% of GDP reflects exceptional revenues and expenditure related to the energy crisis and rising mandatory social spending. With the unwinding of high and volatile energy prices and a 10% growth in nominal GDP, government debt is likely to fall from 44.1% of GDP in 2022 to 43.5% of GDP at the end of 2023.
|Current forecast||Previous forecast|
|Nominal GDP||bill. CZK||5 411||5 791||5 709||6 109||6 795||7 475||7 989||6 749||7 308|
|nominal growth in %||5,9||7,0||-1,4||7,0||11,2||10,0||6,9||10,5||8,3|
|Gross domestic product||real growth in %||3,2||3,0||-5,5||3,6||2,5||0,1||3,0||2,3||-0,5|
|Consumption of households||real growth in %||3,5||2,7||-7,2||4,1||-0,9||-2,7||3,9||-0,7||-2,2|
|Consumption of government||real growth in %||3,9||2,5||4,2||1,4||0,6||1,6||1,3||0,8||1,5|
|Gross fixed capital formation||real growth in %||10,0||5,9||-6,0||0,8||6,2||2,8||0,5||5,4||1,8|
|Contribution of net exports||pp||-1,2||0,0||-0,4||-3,6||0,2||0,8||1,4||0,2||0,9|
|Contrib. of change in inventories||pp||-0,5||-0,3||-0,9||4,8||1,0||-0,5||-0,7||0,8||-1,2|
|GDP deflator||growth in %||2,6||3,9||4,3||3,3||8,6||9,9||3,8||8,0||8,8|
|Average inflation rate||%||2,1||2,8||3,2||3,8||15,1||10,9||2,4||15,1||10,4|
|Employment (LFS)||growth in %||1,4||0,2||-1,3||-0,4||-0,8||-0,2||0,6||-0,8||-0,4|
|Unemployment rate (LFS)||average in %||2,2||2,0||2,6||2,8||2,3||3,0||2,8||2,4||3,2|
|Wage bill (domestic concept)||growth in %||9,6||7,8||0,1||5,9||9,1||7,5||5,8||9,3||6,7|
|Current account balance||% of GDP||0,4||0,3||2,0||-2,8||-6,1||-3,5||-1,9||-5,8||-3,6|
|General government balance||% of GDP||0,9||0,3||-5,8||-5,1||-3,6||-3,5||-2,9||-3,6||-4,2|
|Exchange rate CZK/EUR||25,6||25,7||26,4||25,6||24,6||23,8||23,8||24,6||24,2|
|Long-term interest rates||% p.a.||2,0||1,5||1,1||1,9||4,3||4,5||4,0||4,2||4,6|
|Crude oil Brent||USD/barrel||71||64||42||71||101||77||73||101||81|
|GDP in the euro area||real growth in %||1,8||1,6||-6,3||5,3||3,5||0,7||1,3||3,3||0,4|
Tables and Graphs
Preparation of the Macroeconomic Forecasts
- Preparation of the Macroeconomic Forecast – a Look under the Hood - July 2013 (.PDF, 91 kB)
Evaluation of Forecasting History at the Ministry of Finance
- Macroeconomic Forecasts at the MoF - A Look into the Rear view Mirror - July 2013 (.PDF, 184 kB)
- AnalytIQ tools to assess the MoF forecasts accuracy and much more - April 2023 (.ZIP, 412 kB)
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The Macroeconomic Forecast is prepared by the Economic Policy Department of the Czech Ministry of Finance. It contains a forecast for the years 2023 and 2024, and for certain indicators an outlook for the 2 following years (i.e. until 2026). It is published on a quarterly basis (in January, April, August and November).
Any comments or suggestions that would help us improve the quality of our publication and closer satisfy the needs of its users are welcome. Please send any comments to the following email address: macroeconomic.forecast(at)mfcr.cz
Cut-off Date for Data Sources: The Macroeconomic Forecast is based on data known as of 31 March 2023.