Current forecasts: Czech economy will decline by 7.8% in 2020

The European Commission published an interim version of their summer economic forecast (full version found here) in July, which reflects the post-pandemic situation after the enactment of pandemic measures and lock-down strategies for several months in nearly all European economies.

This forecast projects that the euro area economy will contract by 8.7% in 2020 and grow by 6.1% in 2021. The EU economy will decline by 8.3% in 2020 and grow by 5.8% in 2021. The previous spring outlook was not significantly different in its overall estimates for the EU or euro area, but in the case of Czech Republic its estimation for the current and following year predicted smaller gains. Based on this forecast, the Czech economy will decline by 7.8% in 2020 and in 2021 GDP is expected to grow by 4.5% (previous spring forecast was on the level -6.2% GDP in 2020 and 6% in 2021). The Commission expects that private consumption is likely to remain the main driver of GDP movements, despite slower growth in wages and pension incomes.

Similar decline was predicted in May by the forecast of the Czech Confederation of Industry of the Czech Rep. We assumed 7.8% deterioration for the Czech economy in 2020 and 4.8% growth in 2021. The year-on-year comparison suffers from the problem of collation with the previous year, since significant economic contraction is expected in 2020 and mild recovery may look like several percent growth. In reality we can predict a moderate pace of economic growth in 2021.

The Czech Republic, which has an open and export-oriented economy, could be, despite Covid-19 restrictions, 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.

For comparison, here is the forecast published by Ministry of Finance of the Czech Rep in April. The Czech State Treasury expects economic output decline by 5.6% in 2020. Foreign trade and gross fixed capital formation should record the steepest declines due to pandemic lock down and consequent crisis. However, household consumption should also be lower. In 2020 economic activity should be recovering and economic growth could thus reach 3.1% in 2021. Another relevant institution, Czech National Bank, predicts (based on forecast published in May) decline by 8 % and following growth in 2021 could be at lower level 4 %.

Author: Vladimír Štípek