The Czech Ministry of Finance lowered its forecast for the Czech economy to 1.1% growth amid the continued weak economic output in the eurozone. The ministry expected 1.4% growth in its spring prognosis.
“The main reason for lowering the estimate for this year is the revision of data, carried out by the Czech Statistical Office [CZSO]. The base for 2023 is higher than expected. Last year’s drop in the economy was not 0.3%, but only 0.1%,” Minister of Finance Zbynek Stanjura was quoted as saying by Czech Television (CT).
In June CZSO reported a growth in Czechia’s gross domestic product (GDP) of 0.4% year-on-year and 0.3% quarter-on-quarter, which was below the Czech National Bank (CNB) forecast of 0.7% growth y/y.
While Czech retail activity shows signs of revived activity, registering a 4.4% y/y increase in June, the country’s export-reliant industry is struggling. After some increase in May, S&P Global’s Manufacturing Purchasing Managers’ Index (PMI) returned to a downward trajectory and posted 43.8 in July as local manufacturing companies continue to face record downturns.
Stanjura’s ministry now expects the economy to pick up pace next year at 2.7% growth, with inflation oscillating around the CNB’s target level of 2% both this year and the next year. It also expects real wages to grow by 4%
Stanjura stated that he considers “good news” that “unemployment in the Czech Republic will remain record low when compared to EU [levels] and that real wages will increase more significantly than we expected in April, which is also thanks to the inflation drop”.
In its report, the ministry highlighted that private consumption, which is expected to increase by 2.1% for the whole year, continues to drive economic growth and expects government consumption (+2.3%) to have a positive effect too, while acknowledging that negative effects could also come from the transition in financial periods in EU’s cohesion funds.
The ministry expects a drop in investments by 0.5% and average inflation this year to be 2.4% and 2.3% in 2025.
Household consumption is expected to grow by 3.9% next year, backed by real wage growth, and is expected to be one of the key drivers of economic growth in 2025.
Stanjura also announced that the windfall tax measures aimed at collecting extraordinary profits banks and energy companies made during the energy crisis will remain in place.
“I was saying that if extraordinary income and extraordinary costs will be approximately the same then I am ready to propose it [shortening of the windfall tax measures], but these are not [the same],” Stanjura was quoted as saying by CT, adding that he expects windfall tax measures to be in place in 2025 as well and that state budget proposal for 2025 will calculate with the projected costs from windfall tax.
The state collected CZK39.1bn in windfall tax (€1.6bn), and another CZK18.5bn by collecting excessive profits in 2023. The state income from windfall tax collection was CZK18.2bn at the end of July, CT noted. Stanjura expects the amount to be between CZK33-34bn for the whole of 2024.