The Ministry of Finance expects a slight decline in the Czech economy and a lower public finance deficit last year than expected in November, but lowered the growth forecast for this year, the ministry said in an updated forecast today.
Gross domestic product (GDP) was expected to fall by 6.1% in 2020, against a previously expected decline of 6.6%, as projected in the September forecast. For this year, the ministry expects the economy to recover at a growth rate of 3.1% against the previously mentioned 3.9%.
The Ministry also assumes that the public sector will report a deficit of 5.8% of GDP in 2020 , compared to the previously reported fiscal deficit of 6.4% of GDP . This year, the general government deficit will widen to 6.6% due to the ongoing epidemic and other support measures. Last year, public finances ended in a surplus of 0.3 percent of GDP and total public debt was 30.2% of GDP.
Although the average inflation rate reached 3.2% in 2020, year-on-year consumer price inflation has visibly slowed down in recent months. The decline in consumer demand gradually began to outweigh the effects on the supply side of the economy and at the same time significantly slowed down the growth of food prices, the office said in a report.
With the exception of the price of oil , more significant pro-inflationary factors should be missing this year, and inflation should slow to 1.9% due to falling unit labor costs and the persistence of a negative output gap.
The Office estimates that in 2020 the general government balance reached a deficit of 5.8% of GDP and debt increased to 38.3% of GDP . Ongoing epidemics and massive stimulus measures will increase the deficit to 6.6% of GDP in 2021 , which will deepen the debt level of 43.3% of GDP .
The macroeconomic forecast is burdened by a number of risks, which in total we consider to be significantly skewed downwards. The main negative factor for the Czech Republic and other economies is the development of the epidemic situation and the course of vaccination of the population, the office added.
Internal risks include developments in the automotive industry, labor market responses to possible structural changes in the economy, overvaluation of residential real estate and a possible increase in non-performing loans.
Source: Reuters, CTK
