Economic forecast for 2015: a year of fiscal and monetary expansion

Photo: graur razvan ionut / freedigitalphotos

Economists are forecasting a good year for the Czech economy in 2015 with a predicted growth of 2.5 percent as the economic recovery gains momentum. Supportive financial conditions, government spending, rising confidence and stronger incomes are expected to strengthen domestic demand giving the economy fresh impetus.

Photo: graur razvan ionut / freedigitalphotos
The positive economic trends established in 2014 are expected to continue next year in the form of stable economic growth, a low inflation rate and dropping unemployment. According to economic experts polled by the ctk news agency in late December GDP growth should be at around 2.5 percent and inflation should start out at around zero and not exceed 1.0 percent. The price of goods should be kept in check by falling oil prices on world markets.

Higher wages, bigger pensions and more money spent on social welfare is expected to boost consumer spending and government investments into large infrastructure projects are expected to revitalize the construction industry creating hundreds of new jobs. Economic growth should result in the rate of unemployment declining even more and a faster growth in wages. According to Michal Brožka, chief analyst at Reiffeisenbank, unemployment could drop from the present 7.7 to 7.2 percent. Brožka also predicts a moderate wage growth of around four percent next year, though he says firms are likely to remain fairly cautious.

The outlooks for foreign trade on the other hand are less optimistic, due to the economic slow-down of the Eurozone, the impact of the EU-Russia sanctions and the likely fall of the Russian economy into recession. An important factor in the 2015 outlook, according to ING economist Jakub Seidl is how radically the European central bank may react to the threat of deflation in the Eurozone. The Czech central bank has already made it clear that the forex interventions launched in November of 2013 in order to prevent deflation will remain in place throughout next year. Some analysts predict the interventions could stretch to the end of 2016.