Ministry foresees 3.1 percent growth this year, more in 2022

In a new prognosis the Czech Ministry of Finance says it expects economic growth of 3.1 percent this year. At the same time officials say that the budget deficit will reach 8.8 percent of gross domestic product in 2021.

Last year the Czech economy was rocked by the coronavirus crisis and shrank by 5.6 percent.

While the Ministry of Finance predicts a 3.1 percent expansion in 2021, others are less optimistic. The Czech National Bank issued an estimate of 2.2 percent growth this year, while the Czech Banking Association has forecast 2.6 percent.

In a paper issued this week, the ministry said it expected that gradual vaccination against Covid-19 would improve the situation surrounding the virus, supporting an economic revival both at home and abroad.

However, domestic consumption will not be a key driver of growth. That will be influenced by coronavirus restrictions for at least another quarter, said the minister of finance, Alena Schillerová.

Her officials also envisage a rise in unemployment from last year’s 2.6 percent to 3.6 percent this year. January’s expectation of 1.9 percent inflation has been revised upward to 2.5 percent on the back of oil and food prices.

The Czech economy should grow faster in 2021, at 3.7 percent, says the Ministry of Finance.

Alena Schillerová | Photo: Michaela Danelová,  Czech Radio

It expects unemployment of at least 3.7 percent next year; there should be an economic revival, though that will be offset by the end of government schemes aimed at keeping people in work.

Inflation should slow slightly in 2021, to 2.3 percent, the latest prognosis suggests.

The Ministry of Finance’s estimates serve as the basis for the Convergence Programme, which is the country’s basic document for the adoption of the euro and informs the government’s budget strategy. The government must discuss the document and send it to Brussels by the end of April every year.

Though the ministry envisages a return to economic growth this year, it also assumes that the budget deficit will reach 8.8 percent of GDP in 2021 and 5.9 percent next year. Last year the deficit was 6.2 percent of GDP.

According to the ministry, total public debt should rise from last year’s 38.1 percent of GDP to 44.8 percent this year and 48.2 percent next year.

With a view to reducing the public finance deficit and debt, the ministry is preparing austerity measures for the coming years.

Specifically, says Minister Schillerová, this will concern a comprehensive revision of the tax system, including adjustments to excise duties, a revision of the taxation of global companies and a reduction in exemptions.

At the same time, the salaries of officials, civil servants and constitutional officials will be frozen and the operating expenses of ministries and state offices should be reduced by five to 10 percent.