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Economy and Finance

Economic forecast for Czechia

The latest macroeconomic forecast for Czechia.

Indicators 2023 2024 2025
GDP growth (%. yoy) -0.4 1.1 2.8
Inflation (%. yoy) 12.0 2.9 2.3

Real GDP is estimated to have contracted by 0.4% in 2023 as expected in the Autumn Forecast, according to the preliminary GDP release. In the fourth quarter of 2023, economic activity grew by 0.2% q-o-q. Private consumption was the main drag on GDP growth, as high inflation eroded consumer confidence and real purchasing power. Net exports are likely to have contributed positively to GDP growth as depressed imports are estimated to have offset a still sluggish exports growth. Despite tight financing conditions, investment continued growing, benefiting from increasing public investments supported by EU funds and investments in equipment, while conversely residential construction activity remained depressed.

GDP growth is expected to recover gradually to 1.1% in 2024 and 2.8% in 2025, which is below the autumn projections. Economic growth is set to be supported by the high saving rate of households over the past three years, the projected easing of inflation and rising real wages as well as by further relaxation of financing conditions. However, recent consumer and business confidence indicators are still below historical average, indicating an only gradual return to a higher growth rate of private demand.

The recovery of domestic demand, the easing of financing conditions and an acceleration of RRF implementation should support a pick-up in investment growth towards the end of 2024 and in 2025. Conversely, net exports are likely to contribute less than in 2022 and 2023 to GDP growth over the forecast horizon as the recovery in external demand (especially the automotive industry) is set to be slower than the growth of imports driven by internal demand. The relatively high degree of trade openness and energy intensity of the Czech economy continue to imply downside risks in a potential scenario of disruption of global commodities or energy supply chains.

While HICP inflation remained high through-out 2023 (12% for the year and 8.4% in the last quarter), this was due to the high carry-over of inflation from 2023-Q1. Inflation is set to decline sharply in January 2024 and is forecast at 2.9% in 2024 and at 2.3% in 2025 as the increase in energy and food prices is likely to decelerate. This is a downwards revision for both years compared to autumn. The indices of food prices have declined in the second half of 2023 and are unlikely to contribute to inflation in 2024. Real wages are set to grow this year adding some pressure on inflation. This is, however, projected to be offset by broadly stable energy and food prices and by a decline in companies’ profit margins. While the expiry of energy support measures and the repricing of the regulated part of the electricity and gas tariffs are set to add pressures to energy inflation in 2024-Q1, this is expected to be partly offset by the decline in wholesale energy prices.