GDP growth increased strongly in 2015, partly due to EU-financed public investment. Financial conditions and income growth will continue to support domestic demand, but falling public investment is weighing on growth in 2016. Although gains in market share are likely to be smaller than in recent years, stronger demand from European countries will support export growth. Headline inflation remains low, but robust wage growth and fading effects of food and energy price falls will push inflation to the 2% target by end-2017, the newest Economic Outlook says about the Czech Republic..
The exchange rate floor prevented appreciation of the currency and thereby helped to contain deflationary pressures. As these pressures are waning, the central bank has rightly confirmed that the floor is temporary. Public investment has fallen sharply with the transition to the new EU programming period, and will be offset only partly by spending elsewhere.
Income convergence stalled in the aftermath of the crisis. Structural policies are needed to underpin faster growth on a sustainable and inclusive basis. Policies should focus on generating domestic innovation and creating conditions for successful SMEs to flourish. Expanding childcare availability would increase labour market participation and reduce gender-related wage gaps, thereby reducing labour market tightness and improving inclusiveness.
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16th October 2019
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