According to the Finance Ministry, inflation will be 8.5 percent this year.

In a new forecast, the Finance Ministry has downgraded its estimate of economic growth this year to 3.1 percent, down from 4.1 percent in November. At the same time, the ministry expects higher average inflation for the whole of this year, at 8.5 percent, compared to the November estimate. In November, the MoF projected inflation of 6.1 per cent for this year. The ministry published its forecast on Thursday.

At the same time, Finance Minister Zbyněk Stanjura (ODS) informed us that, on the basis of the new forecast, the MoF can count on higher revenues of about CZK 60 billion in the new budget for this year. In December, the MoF estimated economic growth at 2.9 percent, compared to 2.5 percent in November.

According to the MoF, domestic demand contributed to the growth of the economy last year, mostly due to the increase in inventories and household consumption. The Czech Statistical Office will publish its first estimate of the economy for last year on Tuesday, 1 February.

This year, according to the MF, economic growth should be driven by investment spending by the private and public sectors, as well as by household consumption. However, this will be dampened by a rise in the cost of living, especially energy prices, according to the office.

Inflation will be hampered by the crown

According to the authorities, the rise in electricity and gas prices should contribute significantly to inflation this year. Prices will also be pushed up by the price of oil and rising labour costs.

The forecast says the appreciation of the Czech koruna against the euro should be anti-inflationary. According to the MF, the average exchange rate of the koruna this year should be CZK 24.40/EUR.

“The main macroeconomic problem this year will be accelerating inflation. We, as the government, have only limited options to fight the increased inflation, but we must not give up on them, ” Stanjura said.

“The state’s expansionary fiscal policy has led to a rise in government debt from 30 percent to 42 percent of GDP between 2019 and 2021. We now have no choice but to get our feet back on the ground and manage only with the funds we have available, or at least, those we can realistically repay, ” the finance minister added.

The Czech National Bank forecasts 3.5 percent GDP growth this year in its November forecast.At the same time, the central bank anticipates 5.6 percent average inflation.The bank will publish new estimates in early February.

According to the results of the Finance Ministry’s regular survey in December, based on forecasts by 14 domestic expert institutions, the economy will grow by 3.9 percent this year. At that time, experts estimated this year’s average inflation rate at 5.5 percent.