The Ministry of Finance will present a new forecast today after a long time. The latest forecast is from September 2020, and the Ministry did not prepare the November forecast during key budget debates, citing high uncertainty. The new January numbers will probably be one of the reasons for amending the budget from the end of the year.
The ministry’s September forecast projected growth of 3.9% this year. This is all too optimistic in light of the continuing strong second to third wave of the pandemic and the slow start of vaccination. We expect a gradual recovery of the economy from the second half of the second quarter, which should keep the economy between 2.5-3%.
So far, the Czech economy is lucky that the next wave of the pandemic does not hit the industry, which continued to grow at the end of last year. One of the reasons, however, was the smooth subcontracting of European industrialists from Asia. However, in recent weeks they are beginning to “scrub”. According to the Freightos Baltic Index, container prices between China and Europe have more than tripled in recent weeks. In addition, a new wave of pandemics in China is leading to unpleasant closures in the province, which is responsible for more than a fifth of China’s steel production. China, as the world’s largest steel supplier, is likely to supply smaller markets to the market in the coming weeks. And last but not least, the high demand for electronics in recent months has exhausted the available stocks of chips, and these are beginning to limit the production of the automotive industry.In Germany, because of this, Volkswagen will have to suspend production at the main factory in Wolfsburg for several days in January. These are all factors that can take the Czech industry’s foot out of gas at the beginning of the year and slow down the start of the economy in 2021.
Slower growth combined with an “expensive” tax package will mean only one thing – a significantly higher general government deficit. This year, it will probably surpass the “crisis” year 2020 and climb over 400 billion crowns.
Author: Jan Bureš & Petr Dufek – Patria Finance and ČSOB Finanční trhy
