Czech Economy in 2018
Stable Market Environment and Dynamic Growth
Renewed acceleration of economic growth, an improvement in all components of domestic demand supported by low interest rates, a high volume of new contracts, a drop in the unemployment rate, yet, on the other hand, insufficient labour force on the Czech market or more than 15% inflation in the prices of old apartments. This is what the Czech economy was like in 2017. What is ahead of us this year?
A stable market environment and dynamic growth, yet signs of the economy overheating are growing more numerous. “Real estate prices are growing at a double-digit pace that is the fastest in Europe. The very low unemployment rate and continued growth in labour demand on the part of companies have resulted in the acceleration of salary growth in 2017 that exceeds growth in productivity and is not sustainable,” warns David Marek, Deloitte’s chief economist.
Czech economic outlook for 2018
- The Czech National Bank will continue increasing interest rates. Its key repo rate is likely to be at 1.75% at the year-end.
- GDP is expected to increase by 2.9%, the unemployment level to see minimal changes and salary growth to be subject to continued pressure for fast salary growth.
- Inflation should temporarily drop back to below the central bank’s 2% target. On the one hand, pressures on rising salaries and domestic demand are gaining strength, yet, on the other hand, the effects of the crown’s strengthening exchange rate should prevail.
- Government debt should continue trending downwards, probably amounting to 31.3% of GDP at the year-end.
- Growing domestic demand and salary inflation will also play a key role in the development of consumer prices in 2018.
In the Czech Republic, living standards are at 90.5% of the EU average measured by GDP per capita based on the purchasing power parity. Growth in household consumption accelerated to 3.9%, namely owing to the low unemployment rate and faster-growing salaries. In 2018, GDP is expected to increase by 2.9%. However, such easing will not be enough to reduce the pressure on the labour market. In late 2017 and early 2018, the number of vacancies in the Czech Republic is greater than the available labour force actually looking for employment.