9th November 2016

EC Autumn 2016 Economic Forecast: Czech Republic: Growth expected to gather speed but downside risks dominate

The economic growth in Europe is expected to continue at a moderate pace, as recent labour market gains and rising private consumption are being counterbalanced by a number of hindrances to growth and the weakening of supportive factors. In its autumn forecast released today, the European Commission expects GDP growth in the euro area at 1.7% in 2016, 1.5% in 2017 and 1.7% in 2018 (Spring forecast: 2016: 1.6%, 2017: 1.8%). GDP growth in the EU as a whole should follow a similar pattern and is forecast at 1.8% this year, 1.6% in 2017 and 1.8% in 2018 (Spring forecast: 2016:1.8%, 2017: 1.9%).

As for the Czech Republic, economic growth is expected to fall to 2.2% in 2016 from 4.5% in 2015, largely due to the drop in investment linked to the cycle of EU investment funding. Growth is expected to pick up to 2.6% in 2017 and 2.7% in 2018 as investment activity recovers, also supported by the continuing strength in private and public consumption. The headline government deficit is forecast to decline to 0.2% in 2016, from 0.6% in 2015, but to creep upwards in 2017 and 2018, Autumn 2016 Economic Forecast published by the European Comission says.

A forecast acceleration of investment growth in 2017 and 2018 is expected to contribute to higher real GDP growth as the Czech authorities increase their absorption of EU funds. Private consumption is also expected to make a large positive contribution, despite an expected slowdown in employment growth. As investment picks up, however, the positive contribution of net exports is expected to fade, as demand for investment-related imports increases. Risks to the outlook are tilted to the downside and include uncertainty over the timing and size of the recovery in investment activity and the possibility of lower-than-expected growth in global trade.

The trade surplus is expected to rise to 5.1% of GDP in 2016, from 4.5% in 2015, with lower investment and weaker consumption growth weighing on imports. With the unemployment rate expected to remain around 4% during this
period, among the lowest rates in the EU, labour market conditions are expected to come under strain and wage growth to accelerate. Tight labour market conditions represent a further downside risk to economic growth in the Czech Republic as labour market shortages could potentially weigh on the competitiveness of the economy.
Inflation remained low during the first three quarters of 2016 and is expected to average 0.5% for the year as a whole. Inflation is forecast to increase in 2017 amid higher import prices and rising regulated prices, particularly in the energy sector. This rising trend is forecast to continue in 2018.

Read the press release and more details in country reports. Details in Czech are available here and here.

Click also on Start of the 2017 European Semester: Autumn Package. (A summary in Czech here - the Czech Republic )

Members of the American Chamber of Commerce in the Czech Republic