Economic Forecast Downgraded by Ministry

The Ministry of Finance has downgraded the economic outlook for the year, with gross domestic product (GDP) expected to decrease by 0.5 percent. This is a change from a previous prediction in August that anticipated a decline of only 0.2 percent. The downgrade has been attributed to lower household consumption due to high inflation, as Finance Minister Zbyněk Stanjura explained.

The average annual inflation rate is expected to be 10.8 percent, an improvement of 0.1 percentage points from the August prediction. On the downside, the office has worsened the outlook for price development for next year, now forecasting an inflation rate of 3.3 percent instead of 2.8 percent.

According to economists and Stanjura, the January revaluation is a significant unknown. It will impact changes in the tax rates from added value alongside the increase in energy prices due to the growth of the regulated component.

The high inflation rate this year has been significantly influenced by the high profitability of companies, which is confirmed by better-than-expected corporate income tax collections. According to Stanjura, companies have reflected increased inflationary costs and higher margins in their selling prices.

Although an economic revival is expected in the fourth quarter after unimpressive performances in previous quarters, the country will still not achieve annual growth. “The reason is clear: even due to high inflation, households have sharply curbed their consumption,” stated the head of the state treasury. He said that the decline in household consumption is somewhat compensated by government institutions’ exports, investments, and consumption.

Next year, the Ministry predicts an economic revival when the GDP will increase by 1.9 percent. This will be driven mainly by revived household consumption due to lower inflation and, thus, growing real wages. However, economic growth will be weaker than the Ministry predicted in the August prediction, which estimated a GDP increase of 2.3 percent.

According to the Ministry of Finance’s forecast, the unemployment rate will remain low. This year, it will reach 2.7 percent, and next year, it will increase to 2.8 percent. “Thanks to the situation on the labor market, there will be continued pressure, especially in the private sector, to increase wages,” said Stanjura. According to him, this will cause real wages to return to growth after two years.