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December 27, 2017 11:30 am | FILED UNDER: business

Analysts Forecast GDP Growth to Slowdown in 2018

By ČTK

Prague, Dec 26 (CTK) – Czech economic growth will slow down from this year’s 4.4 percent to 3.3 percent in 2018, average inflation will drop from 2.5 percent to 2.3 percent, unemployment will fall moderately further and wage growth will keep its high speed, according to results of a regular Finance Ministry survey.

 

The survey is based on forecasts of 14 domestic expert institutions and estimates of analysts questioned by CTK.

 

“In 2018 we can expect the economic growth to slow down owing to lower growth of demand from abroad and the impact of stronger exchange rate and higher interest rates. This easying will not, however, suffice to moderate the pressure on the labour market,” Deloitte economic David Marek said.

 

According to CSOB analyst Petr Dufek, the economy has already started to reach capacity limits due to the low unemployment and the lack of employees.

 

“Though it is growing strongly at present, it will start to slow down gradually in 2018,” Dufek said.

 

In comparison with this year, the risks for economic development will increase next year, UniCredit economist Pavel Sobisek said.

 

“The most important of them will be a slowdown of demand for cars in Europe, where the market has been growing steadily for four years. Exports in the sector of vehicles accounts for one third of total exports of the Czech economy,” Sobisek said.

 

According to Marek, inflation should drop below the 2-percent target of the Czech National Bank (CNB) temporarily.

 

“On the one hand, wage pressures and domestic demand are growing, but on the other hand, the impact of the strengthening exchange rate of the crown should prevail,” Marek said.

 

Prices of imported goods are lowering due to the strengthening exchange rate. In addition, inflation will no longer be influenced by the one-off rise of prices in restaurants that resulted from the introduction of electronic registration of sales (EET), Marek noted.

 

The stronger exchange rate will toughen monetary conditions but not sufficiently, which is why the CNB will continue raising interest rates, Marek added.

 

The benchmark interest rate will thus reach 1.75 percent at the end of next year, he said.

 

At present, the basic interest rate is 0.5 percent.

 

According to the Finance Ministry’s document, wage growth should be tightly below 8 percent both this and next year.

 

“Besides the raising of the minimum and guaranteed wages, wage growth will also be influenced positively by the rise of wages in the sector of government institutions and the growing lack of workforce,” the ministry said.

 

The domestic economy showed a success this year, Sobisek said.

 

“All components of demand as well as investments in all groups, the gross value added in all sectors and private consumption of all groups of goods and services recorded an increase. Even the construction, whose results did not look very promising in the first half of the year, raised above last year’s level in the end,” Sobisek said.

 

Selected indicators according to Finance Ministry’s survey:

 

2017

2018

min.

average

max.

min.

average

max.

GDP

3.5

4.4

5

2.6

3.3

3.9

average inflation

2.3

2.5

2.9

1.8

2.3

2.9

unemployment rate (labour force survey)

2.8

3

3.3

2.5

2.9

3.2

volume of wages and salaries (nominal growth in pct)

7.2

7.8

8.9

6.3

7.7

8.7

2019

2020

min.

average

max.

min.

average

max.

GDP

2.3

2.8

3.3

1.9

2.6

3.1

average inflation

1.7

2

2.5

0.7

1.8

2.1

unemployment rate (labour force survey)

2.5

2.9

3.8

2.5

3

3.8

volume of wages and salaries (nominal growth in pct)

4.6

5.2

6

2.3

4.7

6.2

 

Source: survey of macroeconomic forecasts (44th Colloquium), Finance Ministry (December 1)

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