Czech finance ministry slashes 2021 growth forecast to 3.1%

By bne IntelliNews January 24, 2021

The Ministry of Finance lowered its estimate of Czech economic growth in 2021 from 3.9% to 3.1%, following the expected decline in the economy by 6.1% last year, as stated in the press release published by the ministry on January 20. The government will therefore need to submit a new budget for 2021. 

According to its estimate, the public finances will report a deficit of 5.8% of GDP in 2020 due to the coronavirus pandemic, while this year the deficit is expected to rise to 6.6% of  GDP. 

"Thanks to a robust government assistance to households, companies, municipalities and the healthcare system, which last year amounted to 5% of GDP, we managed to reduce the economic downturn,” said Finance Minister Alena Schillerova. 

“The black scenarios, which predicted double-digit declines in the tense spring or autumn days, did not come true. The conservative approach of the Ministry of Finance, which works sensitively with data and carefully evaluates the available information, is confirmed to be the right one," the minister said. 

Thanks to the expected improvement of the epidemic situation in connection with the vaccination process and the expected renewed growth abroad, the Czech economy should gradually recover in  2Q21 and gradually compensate for the previous shock to aggregate demand and supply. 

Although the average inflation rate reached 3.2% in 2020, year-on-year consumer price inflation has visibly slowed down in recent months, said the ministry. The decline in consumer demand gradually outweighed the effects on the supply side of the economy, while visibly slowing down food prices. 

This year, apart from the expected rise in the price of oil, significant pro-inflationary factors should be absent and inflation should slow to 1.9% due to falling unit labour costs and the persistence of a negative output gap.

"Unemployment, despite a certain increase, is at a significantly lower level than would correspond to the current economic downturn. We have built a bridge over which we will cross the crisis without social shocks and make it easier to get on the path of economic recovery," Schillerova added. 

In 2020, the internationally comparable unemployment rate in Czechia reached 2.6%. The delayed effects of the economic downturn and the gradual reduction of measures to maintain employment should increase the unemployment rate to 3.3% in 2021.

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