Macroeconomic Forecast - November 2018

Dept 37 - Economic Policy
Dept 37 - Economic Policy


  • Macroeconomic Forecast
  • Statistics

ISSN 2533-5588

Introduction and Summary of the Forecast

The outlook for the global economic growth is weaker than at the time of publication of the July Macroeconomic Forecast. Increasing tensions in global trade relations, monetary policy tightening in the United States of America and in many developing countries or mounting political risks affect economic sentiment and could undermine the strong economic growth and its sustainability in the medium term. Confidence indicators, albeit still high, are declining slightly. An unsettling fact is a slowdown in the growth rate of global trade and investment. Moreover, the crude oil price has reached the highest level in the past four years.

In 2017, economic growth in both the euro area and the European Union was the strongest in the past 10 years. From the beginning of 2018, however, it has been slowing down, though the fundamental factors remain favourable. Due to a strong link to economies of the European Union, a qualitatively similar scenario can be expected in the Czech Republic. A specific risk for the European Union is the fact that despite the approaching date of the United Kingdom’s withdrawal from the EU, new conditions of mutual relations are neither clear nor predictable.

In line with our expectations the quarter-on-quarter real gross domestic product growth (adjusted for seasonal and calendar effects) slightly accelerated to 0.7% in Q2 2018. By contrast, the economic growth (without adjustment) slowed down to 2.7% in the year-on-year comparison due to a very high base of Q2 2017.

In year-on-year terms, the slowdown applied to all segments of domestic use. Investment in fixed capital recorded the most dynamic growth of 8.8% and the greatest contribution to the economic growth. Double-digit growth achieved not only construction investment including investment in housing, but also purchases of transport equipment.

From the sectoral point of view, the acceleration of investment activity in the general government sector was important, where the year-on-year increase by more than one fifth was due to a higher involvement of the European Structural and Investment Funds. Private investment also showed high dynamics exceeding 6%.

In comparison to the last forecast, consumption of households slowed down to 3.8%. In the conditions of high dynamics of the wage bill growth, this reflected not only a re-acceleration of consumer inflation, but also an unexpected increase in the savings rate by 0.5 pp. The general government consumption increased by 2.9%, driven mostly by higher employment.

The contribution of foreign trade was slightly negative in Q2 2018; it took 0.2 pp off the economic growth. This reflected not only an increase in imports, which was mainly due to high import intensity of investment, but also – on the export side – a slowdown in the growth of export markets.

For the remainder of 2018 and for 2019, we expect the dynamics of growth in economic output to be roughly at the level of Q2 2018.

Therefore, the forecast for real GDP growth in 2018 is slightly revised down from 3.2% to 3.0%. Growth should mainly be driven by investment, which should be stimulated not only by money from the European Structural and Investment Funds, by the need of the private sector to innovate technological equipment while coping with labour market imbalances, but also by decreasing relative cost of capital to the cost of labour at low real interest rates.

The forecast for 2019 is also slightly reduced, from 3.1% to 2.9%. The most important growth factor should be household consumption, which will reflect the still robust wage dynamics at an extremely low unemployment rate and a sharp increase in pensions.

Since the beginning of 2017, the year-on-year growth in consumer prices hovers, with a few exceptions, in the upper half of the tolerance band of the Czech National Bank’s 2% inflation target. Given the inflationary effects of wage and salary developments, positive output gap and an increase in oil prices in CZK, it can be expected to stay at this level to mid-2019. The forecast for the average inflation rate remains unchanged; we expect it to be 2.2% in 2018 and 2.3% in 2019.

High growth in employment, which has steadily been above 1% since the end of 2014, continues despite the limits of the labour market. Lack of employees is a primary barrier to further extensive growth in production, which motivates companies to invest with a view to raise labour productivity. The room for unemployment to decline further is very limited. Therefore, the forecast for the unemployment rate remains identical to the July forecast – 2.3% for both years.

As regards the current account of the balance of payments, the positive balance of goods has gradually been decreasing as a result of higher domestic demand for imports influenced by the increase in consumption and investment. This factor is being accompanied by the impact of the rising oil prices and uncertainties in world trade. That is, however, partly offset by an improving balance of services. Better-than-expected developments on the current account in Q2 2018 led to an improved forecast of its balance. The surplus could reach 0.4% of GDP in 2018 and 2019.

The growth of the Czech economy also affects the budget performance of the general government sector, which should end up in a surplus of 1.6% of GDP in 2018. In 2019 we expect a surplus of around 1% of GDP, which will result from moderating pace of revenues and stronger dynamics of expenditures, especially in the social area. As for the general government sector debt, we expect its relative level to decrease further to 31.9% of GDP at the end of 2019.


Main Macroeconomic Indicators
  2013 2014 2015 2016 2017 2018 2019 2018 2019
Current forecast Previous forecast
Gross domestic product bill. CZK 4 098 4 314 4 596 4 768 5 045 5 296 5 568 5 300 5 589
Gross domestic product growth in %, -0,5 2,7 5,3 2,5 4,3 3,0 2,9 3,2 3,1
Consumption of households growth in %, 0,5 1,8 3,7 3,6 4,3 3,6 3,6 4,3 3,9
Consumption of government growth in %, 2,5 1,1 1,9 2,7 1,3 2,5 2,1 2,1 2,0
Gross fixed capital formation growth in %, -2,5 3,9 10,2 -3,1 3,3 7,8 3,2 7,5 3,2
Net exports contr. to GDP growth, pp 0,1 -0,5 -0,2 1,4 1,1 -0,4 0,0 -0,7 0,1
Change in inventories contr. to GDP growth, pp -0,7 1,1 0,8 -0,4 0,1 -0,8 0,0 -0,4 0,0
GDP deflator growth in % 1,4 2,5 1,2 1,3 1,5 1,9 2,2 1,8 2,3
Average inflation rate % 1,4 0,4 0,3 0,7 2,5 2,2 2,3 2,2 2,3
Employment (LFS) growth in % 1,0 0,8 1,4 1,9 1,6 1,3 0,2 1,3 0,2
Unemployment rate (LFS) average in % 7,0 6,1 5,1 4,0 2,9 2,3 2,3 2,3 2,3
Wage bill (domestic concept) growth in %, 0,5 3,6 4,8 5,7 8,2 9,5 8,4 9,3 8,3
Current account balance % of GDP -0,5 0,2 0,2 1,6 1,1 0,4 0,4 -0,3 -0,2
General government balance % of GDP -1,2 -2,1 -0,6 0,7 1,5 1,6 1,0 1,6 .
Exchange rate CZK/EUR   26,0 27,5 27,3 27,0 26,3 25,5 24,9 25,6 25,2
Long-term interest rates % p.a. 2,2 1,4 0,6 0,4 1,0 2,1 2,6 2,1 2,5
Crude oil Brent USD/barrel 109 99 52 44 54 74 77 73 72
GDP in Eurozone growth in %, -0,2 1,4 2,1 1,9 2,4 2,0 1,7 2,1 1,8
Source: CNB, CZSO, Eurostat, U. S. Energy Information Administration. Calculations of the MoF.


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: 8.11.2018


  • 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 2019) and for certain indicators an outlook for another 2 years (i.e. until 2021). 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 10 October 2018.