Czech GPD growth to slow down

Inflation and a lack of qualified workers will contribute to the drop

The growth rate of the Czech economy will slow down this year and next year, according to the European Commission's spring forecast. This year the Czech gross domestic product (GDP) will grow by 3.4 percent and next year by 3.1 percent. Last year, the Czech economy grew by 4.4 percent. GDP growth accelerated sharply last year from 2.6 percent in 2016.

Domestic demand, driven by the economic recovery, is behind the growth. A shortage of workers and inflation will cause the slowdown.

According to the European Commission, private consumption will grow by 3.9 percent this year, almost the same as last year, thanks to wage growth and consumer confidence. Investments — by both the private and the public sector — are expected to rise by 5.4 percent.

Unemployment in the Czech Republic is the lowest in the EU, and experts say an increasing labor shortage could slow down economic growth. Unemployment dropped to 2.9 percent last year and should stabilize at 2.4 percent this year and next year.

Labor shortages will lead to slow growth, particularly in manufacturing and construction. Wages should grow strongly both this year and next year. Wage pressures and staff shortages may also affect foreign direct investment, especially in the manufacturing industry.

Inflation accelerated at the end of 2016 and start of 2017, due to the strengthening of the Czech crown and the raising of base interest rates by the Czech National Bank (ČNB). This year, inflation will fall to 2.1 percent from 2.4 percent last year. Inflationary pressures remain strong due to wage growth and strong domestic demand, the European Commission states.

The public budget ended in the surplus of 1.6 percent of GDP last year and should remain in surplus this year and next year. It will fall to 1.4 percent of GDP this year and next year to 0.8 percent. A slowdown in tax revenue growth and an increase in government investment will contribute to a lower surplus this year. Budget spending will also increase due to higher wages in the state sector and pensions.

The economy of both the EU and the euro area is expected to grow by 2.3 percent this year.

The economy of the euro area and the entire European Union this year, despite a slight decline at the beginning of the year, will grow by 2.3 percent, the European Commission said.

In 2019, however, the economic performance of both the EU and the euro countries will slow to 2 percent.

The regular spring forecast of the European Commission confirms figures from the previous winter forecast, including last year's data, with a growth of 2.4 percent for the eurozone and the EU as a 10-year maximum.

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