Business Czech deficit and debt growth highlighted in European Commission forecast

26-02-2014 | Chris Johnstone

The latest European Commission macro-economic forecast for the Czech Republic contains few surprises, but a few figures catch the eye as possible problems as the government goes forward.

Photo: Barbora KmentováPhoto: Barbora Kmentová A familiar tale of emergence from recession and strengthening growth amid mild inflation and relatively high unemployment was delivered by the European Commission in its macro economic forecast for the Czech Republic delivered on Tuesday.

Czech GDP growth is expected at 1.8 percent this year and 2.2 percent in 2015 with exports continuing to lead the way this year but recovering domestic demand expected to be the main factor fuelling expansion over the following 12 months.

After four years of falling spending, the country is expected to see an upturn again in investments in long term assets, such as equipment and infrastructure, rather than the economic equivalent of hand to mouth consumption that has been the tale of recent years. The upturn in investments will, however, make a modest contribution to overall growth.

The 2014 growth figures from Brussels are the same as the Czech National Bank but with the difference that the central bank sees 2015 growth at a higher 2.8 percent.

The Commission forecast sees local unemployment sliding from 7.0 percent in 2013, to 6.8 percent in 2014, and 6.6 percent in 2015. Perhaps one of the more interesting figures is the Commission’s prediction is that the public deficit to GDP ratio will climb from 2.8 percent this year to 3.3 percent in 2015.

If true, that would punch a hole in the coalition government’s promises to keep the deficit below the 3.0 percent target level needed to join the single currency euro. The higher deficit figure would put extra pressure on ANO leader and finance minister Andrej Babš to find some of the billions of crowns in untapped potential tax revenues and savings that he likes to talk about.

More worryingly perhaps, a greater proportion of this growing deficit is, according to the Commission, expected to be made up of a basic imbalance between the state’s revenue and spending rather than special factors related to the economic cycle, such as higher expenditure on social services and unemployment payments. After slipping back slightly in 2013, the overall state debt is set to climb again this year to 47.2 percent of GDP and jump even more significantly to 48.6 percent of GDP in 2015.

For those Czechs lucky enough to have jobs, wages are expected to increase again after an average 1.0 percent shrinkage in pay packets across the board in 2013. Two percent increases in pay this year should rise to 2.2 percent in 2015. But even higher expected increases in productivity and output mean that these pay rises should not put a strain on the economy with real unit labour costs set to slide.

The wider European picture is similar to the Czech one. Only Slovenia and Cyprus are expected to remain in recession this year with the latest European Commission prediction seeing overall growth in 2014 at 1.5 percent, up from its previous forecast of 1.4 percent.

Social bookmarking

Featured

Related articles

More

Section Archive

More

Latest programme in English