Macroeconomic Forecast - January 2020

Dept 37 - Economic Policy
Dept 37 - Economic Policy


  • Survey
  • Macroeconomic Forecast

ISSN 2533-5588

Introduction and Summary

Global economic growth slackened considerably last year, contracting to its lowest level since the 2008/2009 recession. In the years to come its momentum is projected to remain low despite a slight upswing. The slowdown in the growth of world trade has been much more profound.

The deepening tension in global trade relations, the rise of protectionism and the uncertainty this engenders have triggered economic losses worldwide by undermining the confidence that businesses and consumers have in future economic developments, a factor that primarily informs investment decisions. Nevertheless, since the last macroeconomic forecast, the intensity of downside risks has waned a little. The signing of the initial phase of a trade deal between the US and China inspires hope, though certain fundamental issues have yet to be resolved. For this year the situation regarding the United Kingdom has also become a bit clearer, with the country having exited the European Union with a deal at the end of January. On the other hand, uncertainty continues to surround the UK’s future relations with the EU once the transition period comes to an end.

As expected, the Czech economy lost some of its growth momentum in Q3 2019. Real gross domestic product, adjusted for seasonal and calendar effects, grew by 0.4% QoQ and 2.5% YoY.

On the use side, it was driven by household consumption that rose 3.3% on the back of the still high growth momentum of wages, salaries and social benefits, as well as a dip in the savings rate. Consumption of the general government sector, underpinned by rising employment and intermediate consumption, increased by 4.0%.

Fixed capital investments remained mired in low dynamism, going up by 1.1%. While private corporate and general government investments effectively stalled, household investment – particularly in housing – reported fairly robust growth. By type of capital, investments were held back mainly by a fall in purchases of machinery and equipment.

As in the previous quarter, external trade made a strongly positive contribution. Exports of goods surged on the back of the previous year’s low basis for comparison in car exports, whereas growth in imports of goods was inhibited by slowing domestic demand, especially highly import intensive investments. On the balance of services imports of business services, encompassing research and development and consulting, posted high growth.

The outlook for the Czech economy essentially remains unchanged. Our estimates indicate that real GDP went up by 2.5% in 2019. We also stick to our forecast that the economy will slow down to 2.0% in 2020, stifled by weaker momentum of domestic demand. Subsequently, in 2021, we predict that GDP will climb by 2.2% courtesy of a gradual upswing abroad.

Economic growth should continue to be driven by household consumption, echoing ongoing strength of wage momentum in combination with extremely low unemployment rate and a major hike in pensions. Fixed capital investment and general government sector consumption – much like the external balance – should also make a moderate contribution to growth.

In November 2019, the year-on-year growth in consumer prices broke through the upper limit of the tolerance band set around the Czech National Bank’s 2% inflation target for the first time since October 2012. The pro-inflationary effects of growing unit labour costs and positive output gap have been compounded by administrative measures and rising food prices. This last factor aside, these influences should slowly subside in the period ahead. Consequently, we can expect inflation to gradually converge to the target. Taking into account price developments at the end of last year and higher expectations for the price of oil, we are nudging up our forecast for average inflation to 2.8% in 2020, and predict that it will stand at 2.2% in 2021.

According to the Labour Force Survey, employment has more or less stagnated since Q2 2019. The ongoing shortage of labour is the main barrier to further extensive growth in production. However, as economic growth slows down, demand for labour should weaken. We estimate that the unemployment rate was 2.0% in 2019. As the output gap gradually closes, we expect to see unemployment increase slightly to 2.2% in 2020 and 2.4% in 2021.

Within the current account of the balance of payments, the surplus on the balance of goods is rising again, having bottomed out in Q1 2019. However, in relative terms the positive balance of goods should stagnate as a result of the weak momentum of global trade and domestic investment demand, before perhaps increasing slightly in 2021. Other current account items should also barely change in relation to GDP. Consequently, the current account surplus could experience an upswing from the estimated 0.3% of GDP in 2019 to 0.6% of GDP this year and then 0.7% GDP in 2021.

We leave the estimate for the general government balance in 2019 unchanged at 0.3% of GDP. The overall result evidently benefited from the surplus cash balance of local budgets and health insurance companies, which probably prevailed over the deficit reported by the central government budget. We are expecting an even balance for 2020. The relative level of general government debt should decline further to 30.5% of GDP by the end of 2020.

Looking at the maturity of the Czech economy, a matter discussed in more detail in the thematic chapter, we believe that last year the Czech Republic caught up with Spain and, relative to the euro area, GDP per capita (taking into account differences in price levels) was 86%. However, comparative price level was probably equal to 69% of the euro area average; the same can be said of the purchasing power of earnings.


Main Macroeconomic Indicators
  2015 2016 2017 2018 2019 2020 2021 2019 2020
Current forecast Previous forecast
Nominal GDP bill. CZK 4 596 4 768 5 047 5 324 5 652 5 913 6 168 5 645 5 894
  nominal growth in % 6,5 3,7 5,9 5,5 6,2 4,6 4,3 5,9 4,4
Gross domestic product real growth in % 5,3 2,5 4,4 2,8 2,5 2,0 2,2 2,5 2,0
   Consumption of households real growth in % 3,7 3,6 4,3 3,2 2,9 2,4 2,2 2,7 2,4
   Consumption of government real growth in % 1,9 2,7 1,3 3,4 3,0 1,9 1,9 3,0 1,8
   Gross fixed capital formation real growth in % 10,2 -3,1 3,7 7,6 1,0 0,9 2,0 0,9 0,7
   Contribution of net exports pp -0,2 1,4 1,1 -0,8 0,1 0,2 0,3 0,4 0,3
   Contrib. of change in inventories pp 0,8 -0,4 0,1 -0,4 0,1 0,0 0,0 0,0 0,0
GDP deflator growth in % 1,2 1,3 1,4 2,6 3,6 2,6 2,1 3,3 2,4
Average inflation rate % 0,3 0,7 2,5 2,1 2,8 2,8 2,2 2,8 2,6
Employment (LFS) growth in % 1,4 1,9 1,6 1,4 0,2 -0,1 0,0 0,3 0,1
Unemployment rate (LFS) average in % 5,1 4,0 2,9 2,2 2,0 2,2 2,4 2,0 2,2
Wage bill (domestic concept) growth in % 4,8 5,7 8,3 9,5 7,2 6,1 5,2 7,4 5,9
Current account balance % of GDP 0,2 1,6 1,7 0,3 0,3 0,6 0,7 0,9 1,4
General government balance % of GDP -0,6 0,7 1,6 1,1 0,3 0,0 . 0,3 0,1
Exchange rate CZK/EUR   27,3 27,0 26,3 25,6 25,7 25,4 25,1 25,7 25,5
Long-term interest rates % p.a. 0,6 0,4 1,0 2,0 1,5 1,4 1,4 1,5 1,2
Crude oil Brent USD/barrel 52 44 54 71 64 64 59 64 59
GDP in the euro area real growth in % 2,0 1,9 2,7 1,9 1,2 1,0 1,4 1,0 0,7


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: 4.2.2020


  • 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 2021) and for certain indicators an outlook for another 2 years (i.e. until 2023). 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 14 January 2020, the cut-off date for selected forecast assumptions was 6 January 2020.