CNB Forecasts Slowdown In Wage Growth

CNB, Czech Republic, Prague

Prague, March 18 (CTK) – Next year may see a slowdown in wage growth in the Czech Republic, and an ideal option would be if wages grew at a similar rate as the country’s real gross domestic product (GDP), that is at some 4 percent, Czech National Bank (CNB) governor Jiri Rusnok said today.


The Czech average gross wage crossed the level of Kc30,000 for the first time in Q4 last year, rising by an annual rate of 8 percent to Kc31,646 and adding 5.3 percent in real terms. GDP growth accelerated to 5.2 percent over the period.


“If real GDP increases by 3 or possibly some 4 percent, real wages might grow at a similar rate, which would be a reasonable hike, in my opinion,” Rusnok said in the discussion programme Questions of Vaclav Moravec on the public Czech Television.


He does not want the wage rise to be inconsistent with the economic performance to a large extent.


The two factors’ imbalance can only last a short time. “In the long run, the economy would be unable to accept it and it would be apparent on the market,” said Rusnok.


The average wage posted an annual increase of 7 percent to Kc29,504 last year, adding 4.4 percent in real terms. However, two thirds of employees earn less than the average wage.


The wage growth is the fastest since 2008, which analysts attribute to a tight labour market.


Rusnok said recently the Czech economy was above its potential and was overheating to some extent. That results in imbalances in some markets, and it is mainly apparent in the labour market, he said.


Rusnok said today the Czech Republic should cope “relatively smoothly” with the overheating. There is an outlook for GDP growth to be decelerating and the economy cooling down, he said.


Commenting on lifting interest rates, Rusnok said the bank would analyse again and again all the indicators. “If there was some dramatic need (to raise rates), we would do that. If the things develop in line with our forecast, then we envisage (another rate hike) for the second half of the year or possibly for the end of the year,” he said. The CNB also sees room for rate hikes in 2019, Rusnok added.