The Ministry of Finance has adjusted its economic forecast, projecting a 0.5 percent contraction in the gross domestic product (GDP) for the year, a steeper decline than the previously estimated 0.2 percent drop in August. Finance Minister Zbyněk Stanjura attributes this downturn to diminished household consumption, a consequence of soaring inflation rates.

The revised economic outlook anticipates an average annual inflation rate of 10.8 percent, a slight improvement from the August prediction. However, concerns loom as the forecast for the following year’s price development has worsened, with an expected inflation rate of 3.3 percent, up from the earlier estimate of 2.8 percent.

Economists and Minister Stanjura highlight the uncertainty surrounding the January revaluation, citing its potential impact on value-added tax rates and energy prices due to the growth of the regulated component.

The current year’s high inflation is linked to robust corporate profitability, reflected in better-than-expected corporate income tax collections. Minister Stanjura notes that companies have adjusted their selling prices to account for increased inflationary costs and higher profit margins.

Despite an anticipated economic revival in the fourth quarter, the country is not expected to achieve annual growth due to a sharp reduction in household consumption driven by high inflation. The state treasury head emphasizes that this decline is partly offset by government institutions’ exports, investments, and consumption.

Looking ahead to next year, the Ministry foresees an economic rebound, with a projected GDP increase of 1.9 percent. The revival is expected to be fueled by increased household consumption resulting from lower inflation and subsequent growth in real wages. However, the predicted economic growth is more conservative than the August estimate, which projected a GDP increase of 2.3 percent.

The Ministry’s forecast also indicates a sustained low unemployment rate, reaching 2.7 percent this year and slightly increasing to 2.8 percent next year. Minister Stanjura suggests that the tight labor market will continue exerting pressure, particularly in the private sector, to drive wage increases, contributing to the anticipated return of real wage growth after a two-year hiatus.

Article by Prague Forum