Macroeconomic Forecast - April 2021
- Macroeconomic Forecast
Introduction and Summary
We expect to see a recovery in global economic activity in 2021. Growth prospects have improved quite significantly over the past few months as the COVID-19 vaccination programme proceeds and other fiscal stimuli come into play in certain countries (notably the US). The data available also suggests that some economies are coping with restrictive anti-epidemic measures better than in the first wave of the pandemic. Even so, the outlook remains burdened by significant downside risks. Critical factors will be the speed and efficiency of the vaccination process and how effective the vaccines are in the face of new coronavirus mutations.
During Q4 2020, the Czech economy showed considerable resilience to the adverse epidemic situation. Real gross domestic product adjusted for seasonal and calendar effects rose by 0.6% QoQ, and its year-on-year decline eased from 5.1% in Q3 to 4.8% in Q4. Taking 2020 as a whole, however, the economy contracted by 5.6%, the largest slump in the history of the independent Czech Republic.
On the use side, the most significant contribution to the year-on-year growth in Q4 (3.3 pp) came from foreign trade, which was driven by output growth in export-oriented industry, especially in the automotive sector. The record trade surplus was also helped by very weak investment activity among domestic firms, the renewed slowdown in household consumption, and the still low price of oil.
As for domestic demand, the year-on-year decline in household consumption deepened significantly to 8.1%. This was due to the closure of a large number of shops and service establishments, as well as the persisting high level of the savings rate prompted by increased uncertainty about the future. Government consumption, including increased spending not only in the health sector, but also on some of the government’s anti-crisis programmes for the business sector, was the only component of domestic use to report growth, rising by 6.8%.
Fixed capital formation slumped by 12.7%, with declines in all major categories. The most significant decrease was in investments in machinery and equipment. From a sectoral perspective, the fall was slowed by rising public investment.
In the Macroeconomic Forecast, we work on the scenario that current restrictions will be eased considerably towards the end of Q2 2021. However, only if the population is vaccinated will there be a sustainable improvement in the epidemic situation. In this light, economic activity should recover more strongly from Q3 onwards and, in doing so, should gradually make up for the previous shock to aggregate demand and supply.
The 3.1% increase in economic output forecast this year should be driven by gross fixed capital formation, inventory rebuilding, and government consumption. The foreign trade balance should also be positive, thanks to the recovery in other countries. By contrast, household consumption should be more or less flat. Economic growth could accelerate to 3.7% in 2022, mainly on the strength of a rebound in private consumption.
Starting in Q4 2020, the year-on-year growth of consumer prices clearly slowed, returning below the upper 3% bound of the tolerance band of the Czech National Bank’s inflation target. While a fall in consumer demand is anti-inflationary, frictions on the supply side of the economy have the opposite effect. The year-on-year inflation should remain in the upper half of the inflation target’s tolerance band. For 2021, we expect an average inflation rate of 2.5%. This increase in the forecast is mainly underpinned by higher oil and food prices. In 2022, in the absence of more substantial inflationary factors – aside from the recovery in household consumption – the inflation rate could ease to 2.3%.
Labour market developments are largely influenced by fiscal stimulus measures. Unemployment, despite some increase, is therefore at a much lower level than would be consistent with the current cyclical position of the Czech economy. The unemployment rate (Labour Force Survey) is expected to increase to 3.6% in 2021 as the delayed effects of the economic downturn come to the fore. It could rise slightly to 3.7% in 2022, as the economic recovery and the end of the government measures that are keeping employment high (assumed to take place at the end of this year) work against each other.
The unfavourable economic situation led to an increase in the surplus on the current account of the balance of payments, as the reduced profitability of foreign-con-trolled enterprises improved the primary income deficit. The trade balance benefited in H2 2020 from a rise in automobile exports, a decline in capital goods imports, and low oil prices. However, most of these factors are temporary. Therefore, the current account surplus should gradually decline from a record 3.6% of GDP in 2020 to 1.3% of GDP in 2021, and then to 0.5% of GDP in 2022.
The public finances deficit of 6.2% of GDP in 2020 was largely the result of the coronavirus epidemic. The deep slump in economic activity entailed a fall in revenue even as spending was increased to contain the spread of the epidemic and mitigate its social and economic impact. The ongoing epidemic will be reflected in this year’s balance, which we expect to be 2.6 pp deeper year-on-year. Public debt is then likely to rise from 38.1% of GDP in 2020 to 44.8% of GDP at the end of 2021. With consolidation under way, we forecast a deficit below 6% of GDP and debt above 48% of GDP next year.
|Current forecast||Previous forecast|
|Nominal GDP||bill. CZK||4 797||5 111||5 410||5 749||5 652||5 932||6 257||5 613||5 874|
|nominal growth in %||3,7||6,5||5,8||6,3||-1,7||4,9||5,5||-2,4||4,7|
|Gross domestic product||real growth in %||2,5||5,2||3,2||2,3||-5,6||3,1||3,7||-6,1||3,1|
|Consumption of households||real growth in %||3,8||4,0||3,5||3,0||-5,2||0,1||5,7||-5,1||3,3|
|Consumption of government||real growth in %||2,5||1,8||3,8||2,2||3,5||3,4||0,9||2,1||2,9|
|Gross fixed capital formation||real growth in %||-3,0||4,9||10,0||2,3||-8,1||3,8||4,5||-8,2||3,8|
|Contribution of net exports||pp||1,4||1,2||-1,2||0,0||-0,3||0,4||-0,2||-0,6||-0,1|
|Contrib. of change in inventories||pp||-0,3||0,5||-0,5||-0,2||-1,5||0,9||0,0||-1,4||0,0|
|GDP deflator||growth in %||1,1||1,3||2,6||3,9||4,2||1,8||1,7||4,0||1,5|
|Average inflation rate||%||0,7||2,5||2,1||2,8||3,2||2,5||2,3||3,2||1,9|
|Employment (LFS)||growth in %||1,9||1,6||1,4||0,2||-1,3||-1,4||0,0||-1,1||-0,6|
|Unemployment rate (LFS)||average in %||4,0||2,9||2,2||2,0||2,6||3,6||3,7||2,6||3,3|
|Wage bill (domestic concept)||growth in %||5,7||9,2||9,6||6,7||0,0||0,7||2,3||0,2||1,2|
|Current account balance||% of GDP||1,8||1,5||0,4||0,3||3,6||1,3||0,5||3,6||1,4|
|General government balance||% of GDP||0,7||1,5||0,9||0,3||-6,2||-8,8||-5,9||-5,8||-6,6|
|Exchange rate CZK/EUR||27,0||26,3||25,6||25,7||26,4||25,9||25,5||26,4||26,1|
|Long-term interest rates||% p.a.||0,4||1,0||2,0||1,5||1,1||1,5||1,8||1,1||1,2|
|Crude oil Brent||USD/barrel||44||54||71||64||42||64||60||42||51|
|GDP in the euro area||real growth in %||1,8||2,7||1,9||1,3||-6,8||3,8||3,6||-7,3||3,6|
Tables and Graphs
Preparation of the Macroeconomic Forecast
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 2021 (.ZIP, 361 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 2021 a 2022 and for certain indicators an outlook for 2 following years (i.e. until 2024). It is published on a quarterly basis (usually in January, April, July 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 forecast is based on the data known as of 1 April 2021; the cut-off date for selected forecast assumptions was 11 March 2021.