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Czech Economy in 2019: Further Slowdown and a Shortage of Workforce

Prague, 7 January 2019 – In 2019, the Czech economy will grow at 2.2%. Owing to the ongoing shortage of workforce, salaries will keep rising (+6.5%) at an ever faster pace compared to work productivity. Inflation will remain at above 2% and the central bank’s currency policy should be less aggressive than last year. These are the conclusions of the 2019 Czech economic outlook prepared by a team of Deloitte’s economists.

“2019 will be, both locally and globally, marked by the advancing autumn in the economic cycle. The financial market volatility and the concerns relating to geopolitical risks will be exacerbated by trade wars between the US and the world, Brexit, Italy’ problematic public finances, parliamentary election in Greece and the European Parliament election,” says David Marek, Deloitte’s Chief Economist.

According to forecasts, the global economy will slow down to 4.0% GDP growth in 2019 and that of Eurozone to 1.8%. In the Czech Republic, Deloitte’s economists expect GDP growth to slow down to 2.2%. However, this will not be significantly reflected in the labour market. Unemployment will remain low and salary growth will be only slightly slower than last year. 2019 will mark the fourth consecutive year when salaries will grow faster than work productivity.

“Salary inflation usually precedes a rise in consumer prices. The growth in food prices owing to last year’s low crop yields and the increase in energy prices early this year will also contribute to consumer price inflation. Inflation should be below 2% during the whole of 2019 and will remain within the Czech National Bank’s tolerance range,” adds David Marek.

The outlook of economic slowdown and inflation within the limits of the inflation target provides some breathing space in terms of the currency policy. Early this year, the Czech National Bank is likely to increase the interest rates once more; however, they could remain stable during the rest of the year.

Regarding the fiscal policy, a whole series of measures adopted in 2018 will manifest themselves, ranging from salary growth in the public sector to the adjustment of pensions and the introduction of transport concessions for students and the elderly. This should result in a decline in the government sector surplus to 0.8% of GDP in 2019. Government debt should further decrease in 2019 to 28.9% of GDP, ie by 2.4 percent points year on year.

According to Deloitte’s analysis, anxiety over economic slowdown will prevail in 2019. Although this is nothing out of the ordinary from the perspective of the economic cycle, if certain geopolitical risks materialise, the global economic slowdown could be felt more severely.

To read the full analysis of the Czech economic developments in 2019 including a comparison with global indicators (in Czech), follow this link.