Economic forecast for 2019 and 2020

The Confederation of Industry of the Czech Republic has prepared its own forecast for economic development in 2019 and 2020.

Our outlook for Czech Republic is based on a detailed analysis of GDP main indicators and other key factors which should influence economic growth.

2018 as a Basis for the Forecast:
The basis of our forecast is the results from 2018. The main components of GDP growth recorded by the Czech Statistical Office are the following:

• Growth of overall GDP in 2018 reached 3%
  • Final households spending: 3.1%
  • Final government consumption expenditure: 3.9%
  • Gross fixed capital formation: 10.1%
  • Growth of exports: 4.5%
  • Growth of imports: 6.0%

Forecast for 2019

We assume that the total growth of GDP in 2019 will be 2.8%. For comparison, the growth of GDP in 2018 was 3% and in 2017 the growth was 4.5%.

There will be still full employment in the Czech Republic, very low unemployment, and quite a significant increase in wages. These factors will help maintain the growth of final consumption expenditure of households. We predict household consumption growth to reach the level of 2.9%.

Due to enormous tax collection in previous years, the government increased its investment and consumption spending. Government final consumption expenditure has increased in the last few years for this reason and some expenditures will continue to grow even in 2019. In spite of the possibility of cancelling some government expenditure programs and some announced efforts for savings, there will be constant pressure on government expenses. We assume the growth for 2019 will be 2%.

We observed growth in prices of raw materials, supplies, energy during year 2018. The current growth of labour costs it will act as a barrier to growth as well.

Thanks to economic growth, companies in the Czech Rep. are generally in good economic condition and there is no lack of resources for investment. There is, at the same time, scarcity in the labour market, so companies are motivated to invest in new technologies. Due to a high comparative base of the previous year the final forecast for growth of Fixed Gross Capital Formation is 4%.

We anticipate decrease in foreign trade, mainly in exports. Recently a decrease in the pace of growth for exports has been observed. There are many threats, including the unresolved Brexit solution, the threat of “no deal” with the EU, and general uncertainty caused by Brexit that affect the behaviour of the business environment. Therefore, we expect a reduction in export growth to 2.5%. Imports are nominally less notable than Czech exports, but due to strong domestic demand we expect stronger growth of imports relative to exports.

The forecast of GDP growth rate and main GDP indicators (in %) for 2019 are the following:

• Growth of GDP 2019: 2.8
  • Households final consumption expenditure: 2.9
  • Government final consumption expenditure: 2.0
  • Fixed gross capital formation: 4.0
  • Export growth: 2.5
  • Import growth: 4.5

Forecast for 2020

We assume a moderate pace of economic growth for 2020. Due to cyclical development, there should be lower growth in comparison with 2019, but we don’t consider the change in growth to be a trend – there should still be low growth but most likely no decease. There are no indicators that suggest significant change.

The Czech economy could be influenced by external threats like trade wars, the deterioration of economic conditions of our main trade partners, and the strengthening of protectionism or consequences of Brexit and its continuing uncertainty. Gross fixed capital formation will be still quite stable, but on a lower level than now because many investments plans will be already completed.

Our forecast for 2020 predicts stable domestic demand supported by a high level of wages, stable public finances (assuming a prudent and restrained approach by the government to public finance, but the Czech government is currently considering some cuts in spending), but it includes the possibility of unpredictable development due to external threats (which mainly impacts exports).

The forecast of main GDP indicators (in %) for 2020 are the following:

• Growth of GDP 2020: 2.0
  • Households final consumption expenditure: 2.6
  • Government final consumption expenditure: 1.4
  • Fixed gross capital Formation: 3.0
  • Export growth: 2,0Import Growth: 2.5

The Czech detailed version of this forecast is available here.

Authors: Vladimír Štípek and Bohuslav Čížek