Winter prognosis: Positive Czech development confirmed

10. 3. 2016 | Source: EU Office ČS, a. s.

motiv článku - Winter prognosis: Positive Czech development confirmed The positive development of the Czech Republic's macroeconomic indicators has been confirmed, as seen in the EC's prognosis at the start of February this year. Even though it's reckoning on lower economic growth in 2016 than in 2015 (which was influenced by the drawing down of European funds from the preceding programme period), it's still an above-average result among EU states.

The positive figures for the Czech Republic's and European Union's economic development were confirmed in the latest European Commission winter prognosis from February. The European Union has been growing for several periods in a row at a gently increasing pace.

This economic revival is driven mainly by consumption and other factors, such as low interest rates, the price of oil, which recently reached a twelve-year minimum, and the development of the Euro's exchange rate.

Economic growth in 2015 was demonstrated in practically all member states, even though in the case of Greece and Finland it tended to be more of a positive zero.

For 2017, however, the Commission is already predicting positive growth in all Union states when the highest economic growth should be achieved by Luxembourg (4.4% GDP) and the lowest in Finland (0.9% GDP).

The positive development is reflected in the labour market where (despite constant high figures in some states) a gradual improvement in the situation and a reduction in the unemployment rate is occurring - in the case of the European Union in 2017 to 8.7% from 9.5% in 2015.

In the Eurozone states it is estimated the unemployment rate will decrease by 0.8 percentage points to 10.2%. This reduction in unemployment will take place in practically all states using the euro, especially those states that will benefit from reforms undertaken in the labour market (e.g. Spain, where the unemployment rate should fall from 22.3% in 2015 to 18.9% in 2017).

Even in trouble-torn Greece it is estimated that unemployment will fall to 22.8% in 2017 and should thus remain the only member state with unemployment over 20%.

The reduction in public financial deficits in member states, which should fall to 1.8% GDP in 2017 from last year's 2.5% GDP, can also undoubtedly be attributed as a further success. Public debt relative to GDP is also on a downward trajectory.

The Czech Republic's economic growth is estimated by the European Commission to be at 4.5% GDP for 2015, which places the country at the forefront of member states, behind the "awakening Irish tiger", Malta and Luxembourg. Compared to the autumn prognosis, there has even been a positive correction, as the Commission had estimated domestic growth about 0.2 percentage points lower.

The positive figures in GDP development were contributed to in large part by both domestic demand and to a large extent by the drawing down of money from European funds. The contribution of net exports for 2015 was still negative for the above reason of strong domestic demand, which had an impact on the flow of imports and which exceeded exports.

For 2016, both domestic demand and the positive contribution of net exports, and to a lesser extent supply, are contributing to estimated growth of 2.3% GDP.

In 2017, the Czech Republic's economic growth is estimated at 2.7% GDP, which exceeds the expected EU average by 0.7 of a percentage point.

The impact of economic growth can be traced to both the improving labour market situation, wherein the Czech Republic's low unemployment rate places it at the forefront of the Union, and the decreasing public debt - or its relation to GDP from 40.9% in 2015 to 40.1% in 2017.

Thanks to increasing consumption and in view of increasing employment and thus the growing pressure on wage growth, the rate of inflation will edge slightly closer to the Czech National Bank's inflation target, and according to the European Commission's prognosis it should reach 1.4%.

Overview of key macroeconomic variables (in %)

Overview of key macroeconomic variables (in %)

Source: The winter 2016 European Economic Forecast

In contrast to the estimated economic growth in the European Union, some external factors may have a negative effect, whether it's the geopolitical situation in the East or developments in the world and developing economies, the weakening of which may be directly reflected both in foreign trade and further developments in member states.

However, a solution to the migration crisis and the result of the planned British referendum regarding the continuation of the United Kingdom in the European Union remain unknown factors. Both these aspects will undoubtedly occupy the media and nor will they allow Union leaders to sleep easy either.

Tomáš Kozelský, EU Office / Knowledge Centre ČS

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