Czech economy in 2018: Stable growth with signs of overheating
Prague, 4 January 2018 – The growth of the Czech economy will slow down in 2018 but it will remain strong and above the Eurozone and EU average. The Czech economy will be even more afflicted by the lack of employees, which may lead to a faster salary growth. However, the labour and real estate markets are increasingly showing signs of overheating. These are the results of the Czech Economic Outlook for 2018 prepared by Deloitte’s analytics team.
“We expect GDP growth to slow down to 2.9 percent in 2018. The key factors include GDP growth in the Eurozone of 1.6 percent, continuing increase in interest rates and a slightly negative impact of the fiscal policy,” says David Marek, Deloitte’s Chief economist.
The Czech economy will continue to struggle with a lack of employees. In late 2017 and early 2018, the Czech Republic had more available job positions than labour force actually looking for employment. Deloitte therefore estimates that the pressure for a faster and more significant salary growth will increase.
The Deloitte analysis also indicates that the job market as well as the real estate market are overheating. The Czech National Bank will therefore continue to increase interest rates. The key repo rate could increase from the current 0.5% up to 1.75% in the course of 2018.
Lower inflation and higher interest rates
Similarly to the last year, the increase in prices in 2018 will be affected by the growing domestic demand and wage inflation. However, another important factor should come into play – the strengthening of the CZK exchange rate, which lowers the prices of imported goods. If the prices of food settle down and no price shock occurs, inflation should gradually decrease. It should remain under two percent throughout most of 2018.
While the proposed state budget expects that the government should incur a deficit, it should be outweighed by surpluses in regional and municipal budgets and the overall balance of the government sector should amount to 0.9% of GDP. The decreasing tendency of the state debt should continue and at the end of the year it should amount to 31.3% of GDP (compared to the 33.6% estimated for last year).
You can read Deloitte’s Czech Economic Outlook for 2018 here (in Czech).