OECD Economic Outlook May 2019, Country Notes: Czech-Republic

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Czech Republic Economic growth will remain robust in 2019 and 2020, although slowing to around 2½ per cent. Household consumption will grow fast thanks to growing wages and social benefits. Government spending and private investment will also contribute to growth. Labour shortages and weaker demand from trading partners will restrain growth in 2020. Monetary policy tightening is projected to continue in 2019 and 2020 to keep inflation close to the 2% target of the central bank. If inflation turns out to be higher than projected, monetary policy tightening would have to be stronger. The fiscal surplus is decreasing mildly on the back of fast spending growth, but public debt is set to decrease further to a record low. Improving transport infrastructure and regulations, lifting barriers to entry in professional services and increasing female participation in the labour market would help to boost potential growth. Growth remains strong The economy remains strong, supported by domestic demand. Although slowing somewhat, household consumption growth will remain robust, driven by high wage growth and employment. On the supply side, strong construction and manufacturing activity are driving production and investment, more specifically, in railway infrastructure. Exports of cars, an important segment of the economy, keep increasing, but overall export growth is slowing as external demand is weakening. This has led to a softening of business confidence, which is expected to slow investment. The labour market remains tight, constraining growth, in particular in sectors like construction. The number of job vacancies has stabilised but remains high, contributing to strong wage growth.

Czech Republic Inflation has picked up

Business confidence has weakened

Y-o-y % changes 3.5

CZK per EUR 28.5

← Headline inflation Exchange rate →

3.0

Balance, s.a. 21 18

28.0

2.5

27.5

2.0

27.0

1.5

26.5

1.0

26.0

0.5

25.5

15 12 0

0.0

2013

2014

2015

2016

2017

2018

2019

2020

25.0

9 6 3 0 2013

2014

2015

2016

2017

2018

-3 2019

Source: Czech Statistical Office; and OECD Economic Outlook 105 database. StatLink 2 https://doi.org/10.1787/888933934242

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019


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