Macroeconomic Forecast - July 2019

Dept 37 - Economic Policy
Dept 37 - Economic Policy


  • Survey
  • Macroeconomic Forecast

ISSN 2533-5588

Introduction and Summary

Global economic expansion started to lose momentum in 2018 and has continued to weaken this year. This reflects primarily increased protectionism and escalating tensions in international trade relations and associated uncertainty among businesses and consumers alike about future economic developments. The situation has been exacerbated by downside risks, which continue to expand at a rapid pace.

The European Union’s economy is fuelled by strong domestic demand and conditions in the labour market but export oriented activity does not fare so well. Economic growth in Q1 2019 exceeded expectations. However, much of this can be attributed to temporary factors, such as stockpiling in the United Kingdom ahead of the original Brexit deadline and the warm winter. The outlook for the remainder of this year is less favourable.

A major cause for concern has been Brexit, as the United Kingdom’s withdrawal from the European Union comes to the final stage. As things stand, the deadline has been postponed to 31 October 2019, in line with conclusions of the European Council. The question is whether a universally acceptable solution can be found by then. This forecast presupposes that the UK does not withdraw without a deal, i.e. that a “hard Brexit” will be avoided.

The Czech economy progressed along relatively positive lines in Q1 2019. As expected, real gross domestic product adjusted for seasonal and calendar effects rose 0.6% QoQ and 2.8% YoY.

In the year-on-year perspective and in terms of components of domestic use, the most dynamic growth was posted by investments in fixed capital, which rose 3.0% despite an expected marked slowdown triggered in particular by lower private-sector investments co-financed by European Union funds. The momentum of general government investments remained high at more than 10%. Household investments, predominantly into housing construction, recorded a similar growth rate.

Household consumption went up by 2.9% on the back of the still high growth momentum of wages and salaries. General government sector consumption increased by 2.8%, underpinned by rising employment and intermediate consumption.

The contribution made by external trade was only marginally negative. Export performance was down and import growth was inhibited by slowing domestic demand, primarily of highly import-intensive investments.

In the Czech Republic, as in a number of other countries, there was a disconnection between business cycle indicators and “hard” data. Statistical data on e.g. industrial production, external trade or retail sales continue to report sound results. By contrast, since October 2018 the composite sentiment indicator has been hinting that economic activity would slow down significantly, probably under the heavy influence of growing risks. As this has not happened yet, we keep our forecast for real GDP growth almost unchanged. The economy could grow by 2.5% in 2019 and – reflecting lower consumption momentum – by 2.3% in 2020.

Economic growth should continue to be driven by consumption of households, echoing ongoing strength of wage momentum in combination with extremely low unemployment rate and a major hike in pensions. Fixed-capital investments and general government sector consumption should also contribute to growth, albeit on a lesser scale than in 2018. External trade is also on track to make a moderately positive contribution.

Since the beginning of 2017, year-on-year growth in consumer prices has tended to hover in the upper half of the tolerance band of the Czech National Bank’s 2% inflation target. It should remain there also in 2019 and 2020, when pro-inflationary effects of rising unit labour costs and positive output gap are expected to be compounded by administrative measures. We are nudging up our forecast for the average inflation rate in 2019 from 2.3% to 2.5%. The revision in the forecast for 2020 from 1.6% to 2.2% is caused by government-approved changes in excise duty on tobacco products and alcohol.

In Q1 2019, employment went up by almost 1%. However, this momentum appears to be unsustainable in the future given how extremely low the unemployment rate is and what demographic factors are in play. The shortage of labour has been the main barrier to further extensive growth in production. This has motivated larger companies in particular to invest with a view to boosting productivity. We believe there is no room for unemployment to decline further. Growth in the demand for labour should weaken in relation to the gradual slowdown of the economy. Labour supply, however, should keep increasing at more or less stable pace, due mainly to demographic and structural factors. The unemployment rate could thus reach 2.2% in 2019 and 2.3% in 2020.

On the current account of the balance of payments, we expect the surplus on the balance of goods to increase in 2019 due to a one-time slump in motor vehicle exports in mid-2018, which dragged down the base for comparison. Other components of the current account should more or less stagnate or report a faint improvement. The upshot of this should be a moderate surplus amounting to 0.6% of GDP in 2019 and 0.8% of GDP in 2020.

The general government balance ended up with a surplus equivalent to 0.9% of GDP in 2018. The structural balance amounted to 0.4% of GDP. Despite the faster growth of capital expenditure and final consumption expenditure of the general government, especially of intermediate consumption and social benefits in kind, we keep our current forecast of the general government surplus in 2019 unchanged at 0.3% of GDP in 2019. The revenue side of public budgets should compensate for higher expenditures. Indebtedness is expected to continue along its downward trajectory, reaching 31.3% of GDP.


Main Macroeconomic Indicators
  2014 2015 2016 2017 2018 2019 2020 2018 2019 2020
Current forecast Previous forecast
Nominal GDP bill. CZK 4 314 4 596 4 768 5 047 5 329 5 627 5 880 5 304 5 595 5 839
Gross domestic product real growth in % 2,7 5,3 2,5 4,4 3,0 2,5 2,3 2,9 2,4 2,4
Consumption of households real growth in % 1,8 3,7 3,6 4,3 3,4 2,8 2,6 3,2 2,9 2,8
Consumption of government real growth in % 1,1 1,9 2,7 1,3 3,9 2,4 1,9 3,7 2,2 1,9
Gross fixed capital formation real growth in % 3,9 10,2 -3,1 3,7 7,2 2,5 2,4 10,5 3,1 2,7
Net exports contr. to GDP growth, pp -0,5 -0,2 1,4 1,1 -0,8 0,4 0,2 -0,7 -0,3 0,0
Change in inventories contr. to GDP growth, pp 1,1 0,8 -0,4 0,1 -0,4 -0,3 0,0 -1,2 0,0 0,0
GDP deflator growth in % 2,5 1,2 1,3 1,4 2,5 3,0 2,1 2,1 3,0 1,9
Average inflation rate % 0,4 0,3 0,7 2,5 2,1 2,5 2,2 2,1 2,3 1,6
Employment (LFS) growth in % 0,8 1,4 1,9 1,6 1,4 0,7 0,3 1,4 0,4 0,2
Unemployment rate (LFS) average in % 6,1 5,1 4,0 2,9 2,2 2,2 2,3 2,2 2,2 2,2
Wage bill (domestic concept) growth in % 3,6 4,8 5,7 8,3 9,5 7,4 5,9 9,3 7,5 5,9
Current account balance % of GDP 0,2 0,2 1,6 1,7 0,3 0,6 0,8 0,3 0,2 0,3
General government balance % of GDP -2,1 -0,6 0,7 1,6 0,9 0,3 . 0,9 0,3 .
Exchange rate CZK/EUR   27,5 27,3 27,0 26,3 25,6 25,6 25,2 25,6 25,5 25,1
Long-term interest rates % p.a. 1,6 0,6 0,4 1,0 2,0 2,0 2,4 2,0 2,2 2,4
Crude oil Brent USD/barrel 99 52 44 54 71 64 60 71 66 65
GDP in Eurozone real growth in % 1,4 2,1 1,9 2,4 1,9 1,1 1,4 1,8 1,0 1,4


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: 31.7.2019


  • 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 2020) and for certain indicators an outlook for another 2 years (i.e. until 2022). 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 July 2019, the cut-off date for selected forecast assumptions was 27 June 2019.