## 1. The Importance of the Auto Sector ## Source details **Canonical URL:** [1. The Importance of the Auto Sector](https://www.imf.org/-/media/files/publications/cr/2019/1czeea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1czeea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1czeea2019001.pdf.json) --- ### Recent developments and growth - Output decelerated in 2018, with GDP growth at 2.9 percent. - Private consumption growth was strong, supported by real incomes and employment security, though it cooled somewhat in the last two quarters. - Investment growth was strong: year-on-year growth in gross fixed capital formation reached 8.9 percent for the private sector and 18 percent for the public sector in 2018, the latter reflecting faster absorption of EU funds. - Survey measures show capacity utilization well above historical averages. - Reduced consumption growth and declining net exports were partially offset by increased investment. - Most sectors recorded growth in value added, led by manufacturing, trade, construction, and information and communication. ### Labor market, wages, and productivity - The labor market tightened considerably in 2018: - The number of vacancies for each unemployed worker increased by 50 percent. - Participation rate increased further to 77 percent by end-2018. - The unemployment rate declined to a new record low of 2 percent in November 2018. - The number of underemployed workers declined further, hours worked by part-time workers increased, and long-term unemployment continued to decline. - Wage dynamics: - Average gross wages increased by 8 percent in 2018. - Public sector wages increased in some cases by as much as 10 percent. - Productivity and unit labor costs: - Growth in output per hour worked fell to 0 percent by end-2018. - Growth in output per employee slowed to 1.5 percent in 2018 (from 2.9 percent in 2017). - Unit labor costs increased by 6.5 percent in 2018. - The labor share of income increased steeply after recent declines. ### Inflation dynamics - Headline inflation has been in the range of around 2 to 2½ percent since 2017, climbing to 2.8 percent in April 2019. - Core inflation is just over the 2 percent target. - Estimated Phillips curve models show procyclical contributions to inflation from labor costs and a significant role for inflation expectations, which are well-anchored at the 2 percent target. - Increases in labor costs have been accommodated by decreasing profit margins, which remain higher than in neighboring economies. - Contributions to inflation by component: - Food and non-alcoholic beverages and services price inflation pushed up inflation in early 2019. - Fuel price inflation was zero in the period noted, and differences between headline and core inflation are due mostly to food and regulated price inflation. ### Savings, household balance sheets, and fiscal position - Gross disposable income and household saving rates increased slightly in 2018. - Aggregate household net financial worth grew by 4½ percent in 2018. - Household debt as a share of disposable income declined slightly to 64½ percent in 2018 (compared with a euro area ratio of 106 percent). - Fiscal position: - Headline surplus of 0.9 percent of GDP in 2018. - Staff projects a surplus of 0.2 percent of GDP and debt of 31.7 percent of GDP in 2019. ### External position and competitiveness - The current account surplus moderated to 0.3 percent of GDP in 2018 from 1.0 percent of GDP in 2017, as both goods and services trade balances declined; the moderation was mainly due to increased absorption of imports amid strong private demand rather than export weakness. - Demand from trading partners softened: euro area growth slowed to 0.2 percent (quarter-on-quarter) in the last two quarters of 2018, from 0.4 percent in the first two quarters. - Gross FDI debt and equity inflows declined to 3.5 percent of GDP in 2018, from 4.3 percent in 2017. - Net capital inflows were 0.4 percent of GDP by end-2018. - The net international investment position improved 4.5 percentage points to -22 percent of GDP in 2018. - External liabilities comprise mostly FDI (52 percent) while official reserves account for 48 percent of external assets. Gross external debt was stable nominally and declined as a share of GDP. - Exports growth remained strong and the share of world imports increased in line with peers. ### Real exchange rate outlook and external assessment - Increasing labor costs caused the ULC-based REER to appreciate by 2½ percent in 2018. - Staff notes that continued income convergence would imply ongoing real exchange rate appreciation (Balassa-Samuelson and income elasticity effects). - Staff assesses the external position in 2018 to have been moderately stronger than the level consistent with medium-term fundamentals and desirable policies: - The EBA current account model estimates the 2018 current account was above the “norm” given desirable policies and abstracting from the cycle. - Much of the current account gap is driven by a stronger fiscal position relative to desired medium-term levels and compared to the rest of the world, plus a large residual component. - The current account gap implies appreciation of the real exchange rate to ease the surplus; in standardized EBA ranges the real exchange rate is moderately undervalued by about 2–4 percent. - Staff finds the EBA current account model estimates more plausible than EBA real exchange rate models that indicate significant overvaluation. ### Housing market pressures - The housing market remains pressured despite a recent deceleration: - House price growth was still among the 5 highest in the EU in 2018, outpacing wage and income growth. - In Prague, offered prices for apartments increased by 44 percent over the three years from 2016 to 2018. - The price-to-income ratio has increased cumulatively (text truncated in source). --- ### Near-term growth momentum and outlook - Near-term growth momentum has slowed: consumer sentiment declined in the second half of 2018 and manufacturing PMIs have been weak. - High-frequency indicators for key trading partners such as Germany and most euro area countries have deteriorated. - Industrial production increased through 2018, but PMIs point to declining momentum. - Growth is forecast to moderate: - Growth is projected to moderate to 2.5 percent for 2019 and increase slightly to 2.6 percent in 2020. - Over the medium term, potential growth is expected to be 2½ percent through the medium term. - Inflation is projected above target at 2½ percent in 2019 and to moderate to target by 2021, on the assumption of moderating increases in labor costs and gradual policy rate increases. - Projection assumptions include: - gradual monetary policy tightening, - temporary external weakness, - a slight improvement in the terms of trade (including from lower energy prices), - nominal currency appreciation due to positive interest rate differentials. ### Risks to the outlook - Main risks are external and to the downside due to the Czech Republic’s openness: - Gross exports are 80 percent of GDP, of which about two thirds is domestic value added. - The economy is tightly integrated into supply chains and highly concentrated in the auto sector. - Specific external risks identified: - disorderly Brexit (to which the Czech Republic is more exposed than the average EU economy), - further weakness in Germany, - significant “confidence” shocks, - increased protectionism. - Domestic uncertainties: - Pressure in the housing market—house price growth remains robust despite increasing lending rates and tighter macroprudential policy. - The outlook for inflation (and hence monetary stance) is uncertain, depending on the relative strength of domestic inflationary pressures versus imported disinflationary pressures. ### The auto sector’s importance - Manufacturing has averaged around one quarter of value added for the past 25 years. - The auto industry (final production and parts manufacturing) represents nearly a fifth of manufacturing. - In world production terms, the Czech auto industry produces slightly less than 1 percent of global value added. - The auto industry accounts for 4.9 percent of gross value added in the Czech Republic—the most important role among countries. ### Authorities’ views on outlook and risks - Authorities expect growth to be close to 2½ percent in the current year, supported by strong domestic demand. - Views for 2020 differed: authorities are more optimistic on potential growth than staff. - The CNB expects inflation to be above target this year but to converge to the inflation target, and the koruna to appreciate further. - External conditions and the path of the exchange rate were viewed as the main uncertainties, tilting output risks to the downside. - The CNB assesses the REER as currently being close to fairly-valued and broadly consistent with fundamentals, but agrees with staff that the real exchange rate will likely appreciate over time. ### Monetary policy - Domestic monetary conditions have tightened while global macro policy tightening slowed. - The Czech National Bank (CNB) increased the policy rate to 2.0 percent in May 2019, following five 25 basis points increases in 2018. - The CNB has shed its tightening bias and signaled no further policy rate increases into 2020. - Staff assessment and projection: - A cautious approach to raising interest rates is appropriate. - Core inflation (Eurostat) is only just above the CPI target, and expectations remain well anchored. - Staff projects inflation to converge to 2 percent over the medium term, assuming rates are held constant in the near term and move to about 3 percent over the medium term. - Given uncertainty about inflation and the external environment, a pause in policy rate changes is justified. - Authorities’ views: - The CNB favors a pause in interest rate hikes, given broadly balanced risks to the inflation forecast and uncertainties about external demand and passthrough of domestic pressures. ### Credit, real estate, and macroprudential policy Findings - Private nonfinancial sector credit accelerated from the previous year, growing ahead of nominal incomes. - Driven primarily by mortgage credit, which continues to grow at a high rate. - New mortgage volumes are decreasing amid increasing lending rates and tighter macroprudential borrower recommendations. - Nonfinancial corporate lending growth also increased in 2018. - Private sector credit growth in 2018: - Overall non-financial sector credit growth was nearly 7 percent in 2018. - Household credit grew by 7½ percent in 2018. - Private non-financial corporation credit grew by 5½ percent in 2018. - Growth of lending for house purchases decelerated to 8½ percent. - Consumer credit growth accelerated from just over 4 percent in 2017 to 6½ percent in 2018. - Banks tightened lending standards to the highest levels in recent years. - Nominal lending rates increased from a historical low of 2.1 percent at end-2016 to about 2.9 percent at end-2018. - The wage interest rate (interest rates deflated by realized wage inflation) is negative and has fallen further. - Mortgage lending rates have been rising; interest rates by maturity for new mortgages show increases. Macroprudential measures and effects - The CNB previously recommended caps on LTVs and limits on shares of high-LTV loans: - cap LTVs on individual loans at 90 percent, - issue no more than 15 percent of new loans with LTV ratios between 80 and 90 percent. - By end-2018: Q2, the share of new loans with LTV ratios between 80 and 90 percent was 11 percent, down from 31 percent by end-2017: Q2. - The share of new loans with LTV ratios above 90 percent decreased slightly to 3 percent. - Two new recommendations effective as of October 2018: - limits for the debt-to-income multiple of 9, - debt-service-to-income ratio of 45 percent. - The number of new mortgages has decreased, but house prices continue to increase, suggesting leverage might still be elevated for some borrowers. - Recommendation: more tightening of macroprudential measures might be required; attention should focus on debt-based measures. - Legal recommendation: the CNB should be granted legal powers of direction to facilitate fulfilment of its financial stability mandate (currently CNB can only make recommendations). ### Housing market and supply-side issues - Property price growth has moderated but remains strong, particularly in Prague. - Apartment prices in Prague experienced the strongest increase. - Price-to-income and price-to-rent ratios have continued to increase; valuations are high according to affordability models. - Household indebtedness and wealth: - Household net worth has increased in recent years but remains relatively low. - Rising incomes slowed the increase in household indebtedness. - Housing supply constraints: - Supply of new dwellings has been slow to pick up since the financial crisis, partly due to problems with the permit process and municipal planning. - In the Czech Republic, 21 procedures are needed to receive a building permit, compared to 12.5 across OECD countries (World Bank Doing Business Indicators). - Complicated regulations and supply-side constraints may put sustained upward pressure on property prices. - Property tax revenue is very low; most revenue comes from transaction taxes and few from value taxes, reducing incentives to move out of housing and reinforcing supply problems. - Policy recommendation: efforts are especially needed to increase housing supply. ### AML/CFT and real estate sector vulnerabilities - The authorities’ national risk assessment and the MONEYVAL AML/CFT assessment identify the real estate sector as one of the sectors most vulnerable to misuse for money laundering activities, including laundering of foreign proceeds. - Real estate agents were identified as having a limited understanding of ML/TF risks. - The Financial Analytical Unit (FAU) has received only a few suspicious transaction reports from real estate professionals in recent years. - Recommendations: - The FAU should continue to raise awareness of ML/TF risks among real estate professionals. - Adopting a licensing regime for real estate agents and collecting better data, including on non-resident and beneficial owners of real estate assets, would help monitoring of this sector. - Authorities’ actions: - Relevant authorities have stepped up AML/CFT training and awareness-raising efforts. - Ongoing discussions to adopt a licensing regime for real estate agents. ### Financial sector policies and supervision - The CNB continues to assess credit market developments and views potential household credit imbalances and property market overheating as risks to financial stability. - The recent slowdown in volumes of new mortgages could reflect “frontloading” before the DTI and DSTI recommendations came into effect in October 2018. - More time is needed to assess the effectiveness of the debt-based limits. --- ### Banking sector overview - Banks hold over three quarters of financial sector assets, with the rest mostly held by insurance, pension, and funds companies. - There are seven Other Significant Institutions in the banking sector, and five that are assessed to be systemically important. - The three largest lenders are subsidiaries of EU banks. - Across the system, banks are funded mostly by deposits; bank assets are mostly in loans, of which about half is directed to households. ### Capitalization, liquidity, and profitability - Capital ratios are well above regulatory minima: - The overall capital ratio increased by about 0.2 percentage points in 2018 to 18.3 percent. - The overall level is comfortably above the minimum level of regulatory capital of 15.4 percent for the system as a whole, which comprises 8 percent Pillar 1, an aggregate average of 1.8 percent additional Pillar 2, and capital buffers (capital conservation, countercyclical, and systemic risk) of 5.6 percent. - The Tier 1 capital ratio increased by 0.3 percentage points to 17.8 percent. - The leverage ratio increased and at 6.5 percent remains at a comparatively high level. - Banks are highly profitable, owing to high net interest margins and low impairments. - Non-performing loans declined further to 3.1 percent of total gross loans in 2018. - Reported liquidity ratios have declined though system liquidity remains stable; two-week repo with the Czech National Bank increased liquidity held outside the defined liquid assets metric. ### Risk weights and asset concentration - Continuing decline in risk weights could be increasing financial sector vulnerability. - Banks’ internal risk-based models are leading to decreasing risk weights across categories because of favorable economic conditions and low impairments. - Risk weights for housing loans have fallen by one third over the past three years, to 21.9 percent. - Bank asset concentration in mortgages has remained broadly stable through the housing cycle and does not appear to be excessive. ### Policy responses and supervision - Authorities have increased capital requirements: - The counter-cyclical capital buffer, currently at 1.25 percent, will increase to 1.5 percent in July 2019 and to 1.75 percent in January 2020. - The systemic risk buffers applying to the five domestic systemically-important banks remain unchanged. - High level of foreign deposits has remained since the release of the koruna floor in April 2017, mostly because of deposits from other credit institutions (rather than direct “client” deposits). - A benign explanation is that Czech yields remained attractive as domestic interest rates increased while those in e.g. the euro area did not. - Recent cases of money laundering across Europe raise concerns about cross-border flows and weaknesses in AML/CFT regimes. ### AML/CFT recommendations - Authorities should closely monitor foreign financial flows and actively seek information on sources of foreign funds, including country of origin and other movements associated with non-resident accounts. - Focus is consistent with the recent comprehensive AML/CFT assessment recommendation to emphasize risks associated with foreign flows and to prevent financial institutions and other intermediaries from assisting integration of foreign criminal assets into the Czech financial system. - Staff recommends continuing focus of AML/CFT supervisory efforts on non-resident clients: - AML/CFT supervision for banks is undertaken by both the CNB and FAU. - Supervisors should ensure banks have an appropriate understanding of their customers, including non-resident clients (subject to customer due diligence measures even when introduced by a foreign parent bank). - Effectiveness could be enhanced by mobilizing existing CNB information on cross-border financial flows to complement off-site supervisory tools. - Ensure banks report aggregate data related to foreign customers, including foreign beneficial owners. - Apply proportionate and dissuasive sanctions for breaches in AML/CFT compliance. - Consider increasing resources for AML/CFT supervision. ### Authorities’ views (on financial sector) - Authorities see the financial system as stable. - Risks from residential property lending are still present, albeit somewhat lower than in 2018. - The CNB is seeking legal powers to set the LTV, DTI and DSTI limits, to ensure the same conditions across all lenders. - Authorities have been focusing on AML/CFT supervision of banks, including on non-resident accounts, and emphasize banks should conduct customer due diligence on all clients, including those introduced by other banks. - Authorities note the vast majority of non-resident funds in Czech banks are deposits of their foreign holding company banks in the context of global liquidity management; in this case responsibility for AML/CFT procedures, including identification of the source of funds, lies with the parent bank. - Authorities will continue to monitor foreign flows associated with non-resident accounts. --- ### Fiscal outturn, projections, and stance - The 2018 general government balance was 0.9 percent of GDP in 2018 (0.5 percent in structural terms), 0.7 percentage points lower than projected in the November 2018 Fiscal Outlook. - The shortfall was driven mainly by higher spending, including on investment (up by 28 percent), the government wage bill (13 percent), and intermediate consumption (10 percent). - Personal income taxes and social security contributions increased by 14 and 10 percent, respectively. - General government gross debt declined to 32.7 percent of GDP by the end of the year. - A moderate surplus is expected in 2019: - Headline balance projected to be 0.2 percent of GDP in 2019; the same as the structural balance and within the 1-percent-of-GDP deficit limit from fiscal rules. - Implies a moderate fiscal impulse of around 0.4 percent of GDP during 2019, driven by discretionary measures and productivity-enhancing investment related to EU structural funds absorption. ### Fiscal stance table (selected entries, In percent of GDP) - Net lending/borrowing (overall balance): 2018 = 0.9; 2019 = 0.2; 2020 = -0.1; 2021 = -0.2; 2022 = -0.4; 2023 = -0.4; 2024 = -0.4 - Primary balance: 2018 = 1.5; 2019 = 0.8; 2020 = 0.4; 2021 = 0.3; 2022 = 0.1; 2023 = 0.0; 2024 = 0.0 - Structural balance (In percent of potential GDP): 2018 = 0.5; 2019 = 0.2; 2020 = -0.1; 2021 = -0.2; 2022 = -0.4; 2023 = -0.4; 2024 = -0.4 - Structural balance excl revenues from EU (net of receipts of EU Structural and Cohesion Funds): 2018 = -0.4; 2019 = -0.9; 2020 = -1.2; 2021 = -1.0; 2022 = -1.2; 2023 = -1.2; 2024 = -1.1 - Public debt: 2018 = 32.7; 2019 = 31.7; 2020 = 30.6; 2021 = 29.8; 2022 = 29.1; 2023 = 28.2; 2024 = 27.4 ### Fiscal policy recommendations and structural priorities - Short run: A broadly neutral fiscal stance is appropriate. - Given existing pressures on demand, no further macroeconomic stimulus is warranted. - A substantial tightening would be risky given output gap uncertainties and downside external risks, and could harm public investment. - Sectoral taxes: - Plans for an extra “digital tax” on companies with annual revenues over €750 million at a proposed rate of 7 percent; staff estimates this would yield about 0.1 percent of GDP in extra revenue. This is not included in the projected headline deficit of 0.2 percent of GDP. - Staff supports internationally-coordinated reform to corporate income taxes but warns unilateral measures risk “double taxation” and economic distortions. - Proposals for extra taxes on bank assets or incomes: staff sees a potential prudential role for bank taxes but notes proposals appear aimed at raising general revenue; taxing bank assets penalizes banks for holding capital and costs may be passed to consumers. - Medium term: Use fiscal space to raise productive capacity while respecting fiscal rules. - Structural balance projected to remain above the medium-term budgetary objective of -0.75 percent of GDP under the Stability and Growth Pact and above the -1 percent of GDP under domestic fiscal rules. - Using available fiscal space allowed under fiscal rules could finance measures to increase potential growth ahead of long-term aging-related spending pressures. - Boosting productivity: - Public investment has been above the EU average over the past 20 years, but firms cite problems with public infrastructure (roads, railways, ports). - Investment in R&D is below Euro Area and EU averages. The government published an Innovation Strategy for the Czech Republic 2019-2030; focus should be on swift and efficient implementation. - Improve coordination across ministries and layers of government to increase public service efficiency and shorten construction permit approval times. - Redirect funds from direct job subsidies (except for disadvantaged groups) toward upskilling: lifelong learning programs and vocational training. - Boosting labor supply: - Develop a long-term immigration strategy that addresses bottlenecks in processing applications to fill vacancies. - Increase female labor force participation by raising the number of childcare facilities. - Consider relaxing overtime regulations that restrict regular planning use of overtime (currently allowed only “due to serious operational reasons”). - Address personal indebtedness barriers to employment; the “discharge amendment” to the Insolvency Act (effective June 2019) aims to make insolvency relief easier—its effectiveness should be reviewed. - Long-term fiscal pressures from aging: - Recent pension changes improve replacement rates but worsen long-term pension sustainability; the increase in the retirement age will be capped at 65 in 2030. The government is expected to issue a report on the pension system in 2019. - Increasing health spending efficiency could free resources for education, upskilling/reskilling, and innovation. - Revenues from property taxes are low compared with other countries; focusing taxation more on value-based property taxes could raise additional revenue for growth-enhancing programs. --- ### Governance, AML/CFT, and foreign bribery - Staff assessment referencing OECD WGB Phase 4 Report (June 2017) and MONEYVAL AML/CFT assessment: - WGB recommendations include prioritizing foreign bribery cases, ensuring adequate analytical resources, strengthening independence of prosecution and whistleblower protections, and better use of AML/CFT frameworks to detect foreign bribery. - MONEYVAL and the 2016 National Risk Assessment identified corruption as a main proceed-generating crime and recommended further analysis on laundering of foreign proceeds, enhancing beneficial ownership accuracy, strengthening supervisory frameworks for financial institutions and DNFBPs, and applying dissuasive sanctions for AML/CFT breaches. - Authorities’ actions: - Working to implement WGB and AML/CFT recommendations. - Volunteered to be part of IMF initiative to address supply side issues of corruption. - Will present Phase 4 two-year written follow-up report at the WGB Plenary in June 2019, after which the report will be published. - Working to implement the EU’s 5th AML Directive, including strengthening the Register of Beneficial Ownership (e.g., introduce sanctions for lack of compliance). - Staff urges authorities to implement WGB and MONEYVAL recommendations, continue monitoring foreign flows, and enhance data collection on non-residents and beneficial owners, especially in real estate. --- ### Key numeric indicators and staff projections (selected) - Real GDP (expenditure) growth: 2018: 2.9; 2019: 2.5; 2020: 2.6; 2021: 2.6; 2022: 2.5; 2023: 2.5; 2024: 2.5 - Unemployment rate (in percent): 2018: 2.2; 2019: 2.2; 2020: 2.3; 2021: 2.5; 2022: 2.8; 2023: 3.0; 2024: 3.2 - Consumer prices (average): 2018: 2.2; 2019: 2.5; 2020: 2.3; 2021: 2.0; 2022: 2.0; 2023: 2.0; 2024: 2.0 - General government revenue (percent of GDP): 2018: 41.7; 2019: 41.8; 2020: 41.6; 2021: 41.5; 2022: 41.4; 2023: 41.3; 2024: 41.2 - General government expenditure (percent of GDP): 2018: 40.8; 2019: 41.6; 2020: 41.7; 2021: 41.7; 2022: 41.8; 2023: 41.7; 2024: 41.6 - Net lending / Overall balance (percent of GDP): 2018: 0.9; 2019: 0.2; 2020: -0.1; 2021: -0.2; 2022: -0.4; 2023: -0.4; 2024: -0.4 - General government debt (percent of GDP): 2018: 32.7; 2019: 31.7; 2020: 30.6; 2021: 29.8; 2022: 29.1; 2023: 28.2; 2024: 27.4 - Current account balance (percent of GDP): 2018: 0.3; 2019: 0.1; 2020: -0.2; 2021: -0.2; 2022: -0.3; 2023: -0.4; 2024: -0.4 - Gross official reserves (billions of euros): 2018: 124.5; 2019: 126.8; 2020: 129.2; 2021: 132.1; 2022: 135.4; 2023: 139.2; 2024: 143.3 - External debt (percent of GDP): 2018: 83.0; 2019: 79.3; 2020: 75.8; 2021: 72.7; 2022: 69.8; 2023: 67.2; 2024: 64.6 - Financial soundness indicator examples (2018): - Regulatory capital to risk-weighted assets: 18.3 - Return on assets: 1.1 - Non-performing loans to total gross loans: 3.1 --- ### Annex I — External Sector Assessment (selected findings) - NIIP stood at -25 percent of GDP in 2018, up from -47 percent of GDP in 2011. - Gross external liabilities declined slightly to 144 percent of GDP in 2018. - Gross external debt declined as a share of GDP to 79.5 percent of GDP in 2018. - The share of short-term external debt stands at 60 percent in 2018, up from 45 percent in 2015 and 35 percent in 2013. - The cyclically-adjusted CA stood at a surplus of 0.6 percent of GDP in 2018; the EBA CA model estimates a CA norm of -1.2 percent of GDP for 2018, implying a CA gap of 1.7 percent of GDP. - REER and valuation: - The annual average ULC-based REER appreciated by 7.1 percent in the period reported; the CPI-based REER appreciated by 3.7 percent. - EBA REER models indicate overvaluation of 14.8 percent (index model) and 19.1 percent (level model). - The EBA current account gap implies a REER undervaluation of 3.9 percent, using an elasticity of 0.44. - The EBA external sustainability (ES) approach suggests a small undervaluation of 2 percent. - Staff assesses the REER to have been moderately undervalued relative to the level consistent with medium-term fundamentals and desirable policy settings; aggregate estimate: exchange rate is estimated to be moderately undervalued by about 4 (± 2) percent. - Capital flows and reserves: - FDI debt and equity inflows declined in 2018 to 3.5 percent of GDP, from 4.3 percent in 2017. - Gross international reserves remained high at $142.5 billion dollars in 2018 (60 percent of GDP). ### Annex II — Reconciling wage and price inflation (hybrid NKPC results, selected) - Empirical conclusions: - The contribution of the labor share and import prices to inflation is procyclical. - Inflation expectations are the main contributor to headline inflation over the past two decades; inflation expectations are well anchored. - Lagged inflation, the labor share, and import prices have positive coefficients but are not statistically significant in reduced-form estimates. - Reduced-form GMM coefficients (selected): - Inflation Expectations coefficient: .6174 (Standard Error .1606; z 3.84; P>|z| 0.000; 95% CI .3025 to .9322) - Lagged Inflation coefficient: .1363 (Standard Error .1231; z 1.11; P>|z| 0.268; 95% CI -.1050 to .3775) - Labor Share coefficient: .0669 (Standard Error .0526; z 1.27; P>|z| 0.203; 95% CI -.0361 to .1700) - Import Prices coefficient: .01207 (Standard Error .0210; z 0.57; P>|z| 0.566; 95% CI -.0291 to .0532) - Parameter ranges from solved specification: - 훽=[0.63,0.80] - 휃=[0.69,0.95] - 휔=[0.02,0.23] ### Policy-relevant implications from NKPC analysis - Inflation expectations dominate statistically and are central to explaining headline inflation; maintaining well-anchored expectations is critical for monetary policy effectiveness. - Wage costs (labor income share) and import prices have procyclical effects, amplifying cyclical swings in headline inflation. - Positive relationship between wage costs and inflation exists but is complex and mediated by expectations and other factors. --- *Source: IMF staff report excerpt: "1. The Importance of the Auto Sector" (CZECH REPUBLIC) from the provided PDF content.* ### 1. The Importance of the Auto Sector ____________________________________________________________ 14 ### 1. The Importance of the Auto Sector ### Recent developments and growth - Output decelerated in 2018, with GDP growth at 2.9 percent. - Private consumption growth was strong, supported by real incomes and employment security, though it cooled somewhat in the last two quarters. - Investment growth was strong: year-on-year growth in gross fixed capital formation reached 8.9 percent for the private sector and 18 percent for the public sector in 2018, the latter reflecting faster absorption of EU funds. - Survey measures show capacity utilization well above historical averages. - Reduced consumption growth and declining net exports were partially offset by increased investment. - Most sectors recorded growth in value added, led by manufacturing, trade, construction, and information and communication. ### Labor market, wages, and productivity - The labor market tightened considerably in 2018: - The number of vacancies for each unemployed worker increased by 50 percent. - Participation rate increased further to 77 percent by end-2018. - The unemployment rate declined to a new record low of 2 percent in November 2018. - The number of underemployed workers declined further, hours worked by part-time workers increased, and long-term unemployment continued to decline. - Wage increases were substantial and broad-based: - Average gross wages increased by 8 percent in 2018. - Public sector wages increased in some cases by as much as 10 percent. - Productivity and unit labor costs: - Growth in output per hour worked fell to 0 percent by end-2018. - Growth in output per employee slowed to 1.5 percent in 2018 (from 2.9 percent in 2017). - Unit labor costs increased by 6.5 percent in 2018. - The labor share of income increased steeply after recent declines. ### Inflation dynamics - Headline inflation has been in the range of around 2 to 2½ percent since 2017, climbing to 2.8 percent in April 2019. - Core inflation is just over the 2 percent target. - Estimated Phillips curve models show procyclical contributions to inflation from labor costs and a significant role for inflation expectations, which are well-anchored at the 2 percent target. - Increases in labor costs have been accommodated by decreasing profit margins, which remain higher than in neighboring economies. - Contributions to inflation by component: - Food and non-alcoholic beverages and services price inflation pushed up inflation in early 2019. - Fuel price inflation was zero in the period noted, and differences between headline and core inflation are due mostly to food and regulated price inflation. ### Savings, household balance sheets, and fiscal position - Gross disposable income and household saving rates increased slightly in 2018. - Aggregate household net financial worth grew by 4½ percent in 2018. - Household debt as a share of disposable income declined slightly to 64½ percent in 2018 (compared with a euro area ratio of 106 percent). - Fiscal position: - Headline surplus of 0.9 percent of GDP in 2018. - Staff projects a surplus of 0.2 percent of GDP and debt of 31.7 percent of GDP in 2019. ### External position and competitiveness - The current account surplus moderated to 0.3 percent of GDP in 2018 from 1.0 percent of GDP in 2017, as both goods and services trade balances declined; the moderation was mainly due to increased absorption of imports amid strong private demand rather than export weakness. - Demand from trading partners softened: euro area growth slowed to 0.2 percent (quarter-on-quarter) in the last two quarters of 2018, from 0.4 percent in the first two quarters. - Gross FDI debt and equity inflows declined to 3.5 percent of GDP in 2018, from 4.3 percent in 2017. - There were gross portfolio debt outflows due to government bond repayments and lower borrowing by financial firms; other investment liability flows turned negative in 2018 after FX-floor related increases in previous years. - Net capital inflows were 0.4 percent of GDP by end-2018. - The net international investment position improved 4.5 percentage points to -22 percent of GDP in 2018. - External liabilities comprise mostly FDI (52 percent) while official reserves account for 48 percent of external assets. Gross external debt was stable nominally and declined as a share of GDP. - Exports growth remained strong and the share of world imports increased in line with peers. ### Real exchange rate outlook and external assessment - Increasing labor costs caused the ULC-based REER to appreciate by 2½ percent in 2018. - Staff notes that continued income convergence would imply ongoing real exchange rate appreciation (Balassa-Samuelson and income elasticity effects). - Staff assesses the external position in 2018 to have been moderately stronger than the level consistent with medium-term fundamentals and desirable policies: - The EBA current account model estimates the 2018 current account was above the “norm” given desirable policies and abstracting from the cycle. - Much of the current account gap is driven by a stronger fiscal position relative to desired medium-term levels and compared to the rest of the world, plus a large residual component. - The current account gap implies appreciation of the real exchange rate to ease the surplus; in standardized EBA ranges the real exchange rate is moderately undervalued by about 2–4 percent. - Staff finds the EBA current account model estimates more plausible than EBA real exchange rate models that indicate significant overvaluation. ### Housing market pressures - The housing market remains pressured despite a recent deceleration: - House price growth was still among the 5 highest in the EU in 2018, outpacing wage and income growth. - In Prague, offered prices for apartments increased by 44 percent over the three years from 2016 to 2018. - The price-to-income ratio has increased cumulatively (text truncated in source). *Source: IMF staff report excerpt: "1. The Importance of the Auto Sector" (CZECH REPUBLIC) from the provided PDF content.* ### 12.6 percent between 2015: Q4 and 2018: Q4, after having been stable over the preceding ### 1czeea2019001 - 12.6 percent between 2015: Q4 and 2018: Q4, after having been stable over the preceding ### Near-term growth momentum and outlook - Near-term growth momentum has slowed: consumer sentiment declined in the second half of 2018 and manufacturing PMIs have been weak. - High-frequency indicators for key trading partners such as Germany and most euro area countries have deteriorated. - Industrial production increased through 2018, but PMIs point to declining momentum. - Growth is forecast to moderate: - Growth is projected to moderate to 2.5 percent for 2019 and increase slightly to 2.6 percent in 2020. - Over the medium term, potential growth is expected to be 2½ percent through the medium term. - Inflation is projected above target at 2½ percent in 2019 and to moderate to target by 2021, on the assumption of moderating increases in labor costs and gradual policy rate increases. - The projection assumptions include: - gradual monetary policy tightening, - temporary external weakness, - a slight improvement in the terms of trade (including from lower energy prices), - nominal currency appreciation due to positive interest rate differentials. ### Risks to the outlook - Main risks are external and to the downside due to the Czech Republic’s openness: - Gross exports are 80 percent of GDP, of which about two thirds is domestic value added. - The economy is tightly integrated into supply chains and highly concentrated in the auto sector. - Specific external risks identified: - disorderly Brexit (to which the Czech Republic is more exposed than the average EU economy), - further weakness in Germany, - significant “confidence” shocks, - increased protectionism. - Domestic uncertainties: - Pressure in the housing market—house price growth remains robust despite increasing lending rates and tighter macroprudential policy. - The outlook for inflation (and hence monetary stance) is uncertain, depending on the relative strength of domestic inflationary pressures versus imported disinflationary pressures. ### The auto sector’s importance - Manufacturing has averaged around one quarter of value added for the past 25 years. - The auto industry (final production and parts manufacturing) represents nearly a fifth of manufacturing. - In world production terms, the Czech auto industry produces slightly less than 1 percent of global value added. - The auto industry accounts for 4.9 percent of gross value added in the Czech Republic—the most important role among countries. ### Authorities’ views on outlook and risks - Authorities expect growth to be close to 2½ percent in the current year, supported by strong domestic demand. - Views for 2020 differed: authorities are more optimistic on potential growth than staff. - The CNB expects inflation to be above target this year but to converge to the inflation target, and the koruna to appreciate further. - External conditions and the path of the exchange rate were viewed as the main uncertainties, tilting output risks to the downside. - The CNB assesses the REER as currently being close to fairly-valued and broadly consistent with fundamentals, but agrees with staff that the real exchange rate will likely appreciate over time. ### Monetary policy - Domestic monetary conditions have tightened while global macro policy tightening slowed. - The Czech National Bank (CNB) increased the policy rate to 2.0 percent in May 2019, following five 25 basis points increases in 2018. - The CNB has shed its tightening bias and signaled no further policy rate increases into 2020. - Staff assessment and projection: - A cautious approach to raising interest rates is appropriate. - Core inflation (Eurostat) is only just above the CPI target, and expectations remain well anchored. - Staff projects inflation to converge to 2 percent over the medium term, assuming rates are held constant in the near term and move to about 3 percent over the medium term. - Given uncertainty about inflation and the external environment, a pause in policy rate changes is justified. - Authorities’ views: - The CNB favors a pause in interest rate hikes, given broadly balanced risks to the inflation forecast and uncertainties about external demand and passthrough of domestic pressures. ### Credit, real estate, and macroprudential policy Findings - Private nonfinancial sector credit accelerated from the previous year, growing ahead of nominal incomes. - This was driven primarily by mortgage credit, which continues to grow at a high rate. - New mortgage volumes are decreasing amid increasing lending rates and tighter macroprudential borrower recommendations. - Nonfinancial corporate lending growth also increased in 2018. - Private sector credit growth in 2018: - Overall non-financial sector credit growth was nearly 7 percent in 2018. - Household credit grew by 7½ percent in 2018. - Private non-financial corporation credit grew by 5½ percent in 2018. - Growth of lending for house purchases decelerated to 8½ percent. - Consumer credit growth accelerated from just over 4 percent in 2017 to 6½ percent in 2018. - Banks tightened lending standards to the highest levels in recent years. - Nominal lending rates increased from a historical low of 2.1 percent at end-2016 to about 2.9 percent at end-2018. - The wage interest rate (interest rates deflated by realized wage inflation) is negative and has fallen further. - Mortgage lending rates have been rising; interest rates by maturity for new mortgages show increases. Macroprudential measures and effects - The CNB previously recommended caps on LTVs and limits on shares of high-LTV loans: - cap LTVs on individual loans at 90 percent, - issue no more than 15 percent of new loans with LTV ratios between 80 and 90 percent. - By end-2018: Q2, the share of new loans with LTV ratios between 80 and 90 percent was 11 percent, down from 31 percent by end-2017: Q2. - The share of new loans with LTV ratios above 90 percent decreased slightly to 3 percent. - Two new recommendations effective as of October 2018: - limits for the debt-to-income multiple of 9, - debt-service-to-income ratio of 45 percent. - The number of new mortgages has decreased, but house prices continue to increase, suggesting leverage might still be elevated for some borrowers. - Recommendation: more tightening of macroprudential measures might be required; attention should focus on debt-based measures. - Legal recommendation: the CNB should be granted legal powers of direction to facilitate fulfilment of its financial stability mandate (currently CNB can only make recommendations). ### Housing market and supply-side issues - Property price growth has moderated but remains strong, particularly in Prague. - Apartment prices in Prague experienced the strongest increase. - Price-to-income and price-to-rent ratios have continued to increase; valuations are high according to affordability models. - Household indebtedness and wealth: - Household net worth has increased in recent years but remains relatively low. - Rising incomes slowed the increase in household indebtedness. - Housing supply constraints: - Supply of new dwellings has been slow to pick up since the financial crisis, partly due to problems with the permit process and municipal planning. - In the Czech Republic, 21 procedures are needed to receive a building permit, compared to 12.5 across OECD countries (World Bank Doing Business Indicators). - Complicated regulations and supply-side constraints may put sustained upward pressure on property prices. - Property tax revenue is very low; most revenue comes from transaction taxes and few from value taxes, reducing incentives to move out of housing and reinforcing supply problems. - Policy recommendation: efforts are especially needed to increase housing supply. ### AML/CFT and real estate sector vulnerabilities - The authorities’ national risk assessment and the MONEYVAL AML/CFT assessment identify the real estate sector as one of the sectors most vulnerable to misuse for money laundering activities, including laundering of foreign proceeds. - Real estate agents were identified as having a limited understanding of ML/TF risks. - The Financial Analytical Unit (FAU) has received only a few suspicious transaction reports from real estate professionals in recent years. - Recommendations: - The FAU should continue to raise awareness of ML/TF risks among real estate professionals. - Adopting a licensing regime for real estate agents and collecting better data, including on non-resident and beneficial owners of real estate assets, would help monitoring of this sector. - Authorities’ actions: - Relevant authorities have stepped up AML/CFT training and awareness-raising efforts. - Ongoing discussions to adopt a licensing regime for real estate agents. ### Financial sector policies and supervision - The CNB continues to assess credit market developments and views potential household credit imbalances and property market overheating as risks to financial stability. - The recent slowdown in volumes of new mortgages could reflect “frontloading” before the DTI and DSTI recommendations came into effect in October 2018. - More time is needed to assess the effectiveness of the debt-based limits. *Source: IMF staff report content provided in the supplied PDF excerpt.* ### 24. Banks are well capitalized and profitable. Banks hold over three quarters of financial ### 24. Banks are well capitalized and profitable. ### Banking sector overview - Banks hold over three quarters of financial sector assets, with the rest mostly held by insurance, pension, and funds companies. - There are seven Other Significant Institutions in the banking sector, and five that are assessed to be systemically important. - The three largest lenders are subsidiaries of EU banks. - Across the system, banks are funded mostly by deposits; bank assets are mostly in loans, of which about half is directed to households. ### Capitalization, liquidity, and profitability - Capital ratios are well above regulatory minima: - The overall capital ratio increased by about 0.2 percentage points in 2018 to 18.3 percent. - The overall level is comfortably above the minimum level of regulatory capital of 15.4 percent for the system as a whole, which comprises 8 percent Pillar 1, an aggregate average of 1.8 percent additional Pillar 2, and capital buffers (capital conservation, countercyclical, and systemic risk) of 5.6 percent. - The Tier 1 capital ratio increased by 0.3 percentage points to 17.8 percent. - The leverage ratio increased and at 6.5 percent remains at a comparatively high level. - Banks are highly profitable, owing to high net interest margins and low impairments. - Non-performing loans declined further to 3.1 percent of total gross loans in 2018. - Reported liquidity ratios have declined though system liquidity remains stable; two-week repo with the Czech National Bank increased liquidity held outside the defined liquid assets metric. ### Risk weights and asset concentration - Continuing decline in risk weights could be increasing financial sector vulnerability. - Banks’ internal risk-based models are leading to decreasing risk weights across categories because of favorable economic conditions and low impairments. - Risk weights for housing loans have fallen by one third over the past three years, to 21.9 percent. - Bank asset concentration in mortgages has remained broadly stable through the housing cycle and does not appear to be excessive. ### Policy responses and supervision - Authorities have increased capital requirements: - The counter-cyclical capital buffer, currently at 1.25 percent, will increase to 1.5 percent in July 2019 and to 1.75 percent in January 2020. - The systemic risk buffers applying to the five domestic systemically-important banks remain unchanged. - High level of foreign deposits has remained since the release of the koruna floor in April 2017, mostly because of deposits from other credit institutions (rather than direct “client” deposits). - A benign explanation is that Czech yields remained attractive as domestic interest rates increased while those in e.g. the euro area did not. - Recent cases of money laundering across Europe raise concerns about cross-border flows and weaknesses in AML/CFT regimes. ### AML/CFT recommendations - Authorities should closely monitor foreign financial flows and actively seek information on sources of foreign funds, including country of origin and other movements associated with non-resident accounts. - Focus is consistent with the recent comprehensive AML/CFT assessment recommendation to emphasize risks associated with foreign flows and to prevent financial institutions and other intermediaries from assisting integration of foreign criminal assets into the Czech financial system. - Staff recommends continuing focus of AML/CFT supervisory efforts on non-resident clients: - AML/CFT supervision for banks is undertaken by both the CNB and FAU. - Supervisors should ensure banks have an appropriate understanding of their customers, including non-resident clients (subject to customer due diligence measures even when introduced by a foreign parent bank). - Effectiveness could be enhanced by mobilizing existing CNB information on cross-border financial flows to complement off-site supervisory tools. - Ensure banks report aggregate data related to foreign customers, including foreign beneficial owners. - Apply proportionate and dissuasive sanctions for breaches in AML/CFT compliance. - Consider increasing resources for AML/CFT supervision. ### Authorities’ views (on financial sector) - Authorities see the financial system as stable. - Risks from residential property lending are still present, albeit somewhat lower than in 2018. - The CNB is seeking legal powers to set the LTV, DTI and DSTI limits, to ensure the same conditions across all lenders. - Authorities have been focusing on AML/CFT supervision of banks, including on non-resident accounts, and emphasize banks should conduct customer due diligence on all clients, including those introduced by other banks. - Authorities note the vast majority of non-resident funds in Czech banks are deposits of their foreign holding company banks in the context of global liquidity management; in this case responsibility for AML/CFT procedures, including identification of the source of funds, lies with the parent bank. - Authorities will continue to monitor foreign flows associated with non-resident accounts. ### Fiscal outturn, projections, and stance - The 2018 general government balance was 0.9 percent of GDP in 2018 (0.5 percent in structural terms), 0.7 percentage points lower than projected in the November 2018 Fiscal Outlook. - The shortfall was driven mainly by higher spending, including on investment (up by 28 percent), the government wage bill (13 percent), and intermediate consumption (10 percent). - Personal income taxes and social security contributions increased by 14 and 10 percent, respectively. - General government gross debt declined to 32.7 percent of GDP by the end of the year. - A moderate surplus is expected in 2019: - Headline balance projected to be 0.2 percent of GDP in 2019; the same as the structural balance and within the 1-percent-of-GDP deficit limit from fiscal rules. - Implies a moderate fiscal impulse of around 0.4 percent of GDP during 2019, driven by discretionary measures and productivity-enhancing investment related to EU structural funds absorption. - Text Table: Czech Republic: Fiscal Stance (In percent of GDP) - Net lending/borrowing (overall balance): 2018 = 0.9; 2019 = 0.2; 2020 = -0.1; 2021 = -0.2; 2022 = -0.4; 2023 = -0.4; 2024 = -0.4 - Primary balance: 2018 = 1.5; 2019 = 0.8; 2020 = 0.4; 2021 = 0.3; 2022 = 0.1; 2023 = 0.0; 2024 = 0.0 - Structural balance (In percent of potential GDP): 2018 = 0.5; 2019 = 0.2; 2020 = -0.1; 2021 = -0.2; 2022 = -0.4; 2023 = -0.4; 2024 = -0.4 - Change in cyclically adjusted primary balance: 2018 = -0.6; 2019 = -0.5; 2020 = -0.3; 2021 = -0.2; 2022 = -0.2; 2023 = 0.0; 2024 = 0.0 - Structural balance excl revenues from EU (net of receipts of EU Structural and Cohesion Funds; In percent of potential GDP): 2018 = -0.4; 2019 = -0.9; 2020 = -1.2; 2021 = -1.0; 2022 = -1.2; 2023 = -1.2; 2024 = -1.1 - Public debt: 2018 = 32.7; 2019 = 31.7; 2020 = 30.6; 2021 = 29.8; 2022 = 29.1; 2023 = 28.2; 2024 = 27.4 - Source for table: Czech Ministry of Finance, Czech National Bank, and Fund staff projections. - The April 2019 convergence program projects a small nominal deficit in 2020, but ongoing discussions may change the final budget. - Proposed discretionary measures include an increase in the parental allowance costing about 0.2 percent of GDP, and an increase in pensions costing about 0.1 percent of GDP. ### Fiscal policy recommendations and structural priorities - Short run: A broadly neutral fiscal stance is appropriate. - Given existing pressures on demand, no further macroeconomic stimulus is warranted. - A substantial tightening would be risky given output gap uncertainties and downside external risks, and could harm public investment. - Sectoral taxes: - Plans for an extra “digital tax” on companies with annual revenues over €750 million at a proposed rate of 7 percent; staff estimates this would yield about 0.1 percent of GDP in extra revenue. This is not included in the projected headline deficit of 0.2 percent of GDP. - Staff supports internationally-coordinated reform to corporate income taxes but warns unilateral measures risk “double taxation” and economic distortions. - Proposals for extra taxes on bank assets or incomes: staff sees a potential prudential role for bank taxes but notes proposals appear aimed at raising general revenue; taxing bank assets penalizes banks for holding capital and costs may be passed to consumers. - Medium term: Use fiscal space to raise productive capacity while respecting fiscal rules. - Structural balance projected to remain above the medium-term budgetary objective of -0.75 percent of GDP under the Stability and Growth Pact and above the -1 percent of GDP under domestic fiscal rules. - Using available fiscal space allowed under fiscal rules could finance measures to increase potential growth ahead of long-term aging-related spending pressures. - Boosting productivity: - Public investment has been above the EU average over the past 20 years, but firms cite problems with public infrastructure (roads, railways, ports). - Investment in R&D is below Euro Area and EU averages. The government published an Innovation Strategy for the Czech Republic 2019-2030; focus should be on swift and efficient implementation. - Improve coordination across ministries and layers of government to increase public service efficiency and shorten construction permit approval times. - Redirect funds from direct job subsidies (except for disadvantaged groups) toward upskilling: lifelong learning programs and vocational training. - Boosting labor supply: - Develop a long-term immigration strategy that addresses bottlenecks in processing applications to fill vacancies. - Increase female labor force participation by raising the number of childcare facilities. - Consider relaxing overtime regulations that restrict regular planning use of overtime (currently allowed only “due to serious operational reasons”). - Address personal indebtedness barriers to employment; the “discharge amendment” to the Insolvency Act (effective June 2019) aims to make insolvency relief easier—its effectiveness should be reviewed. - Long-term fiscal pressures from aging: - Recent pension changes improve replacement rates but worsen long-term pension sustainability; the increase in the retirement age will be capped at 65 in 2030. The government is expected to issue a report on the pension system in 2019. - Increasing health spending efficiency could free resources for education, upskilling/reskilling, and innovation. - Revenues from property taxes are low compared with other countries; focusing taxation more on value-based property taxes could raise additional revenue for growth-enhancing programs. *International Monetary Fund: Czech Republic — selected financial and fiscal sector findings and recommendations (excerpts).* ### 40. The authorities reiterated their commitment to fiscal discipline, citing long-term debt ### 1czeea2019001 - 40. The authorities reiterated their commitment to fiscal discipline, citing long-term debt ### Fiscal stance and supply-side constraints - Authorities reiterated commitment to fiscal discipline, citing long-term debt sustainability problems. - Authorities agreed that the fiscal stance will be procyclical in 2020, but pointed to the softening macroeconomic environment. - Authorities argued that supply constraints and fiscal rules impose limits on further spending. - Authorities cited the recently-published Innovation Strategy as an important step toward boosting the supply side of the economy. - Recognized need for boosting workforce participation and skills: - Efforts to improve certification of qualifications in support of life-long learning. - Significant improvements in the provision of childcare facilities, albeit limited by a lack of qualified personnel. - Authorities expressed concerns that valuation-based property taxation could potentially penalize low income households with limited ability to pay. ### Governance and foreign bribery (OECD WGB Phase 4) - Staff assessment based on OECD Working Group on Bribery in International Business Transaction (WGB) Phase 4 Report on the Czech Republic (June 2017). - WGB noted measures and good practices to facilitate enforcement: - Effective use of mutual legal assistance requests to detect foreign bribery cases. - Successful use of non-financial evidence to obtain convictions. - Establishment of joint investigation teams for transnational investigations. - Recent establishment of centralized registries for bank accounts, beneficial ownership information of legal persons and arrangements, and contracts. - WGB recommendations (to strengthen efforts to detect, investigate and prosecute foreign bribery): - Prioritize efforts to pursue foreign bribery cases, considering export-oriented nature of the Czech economy and high-risk sectors (e.g., machinery and defense materials) and destinations (high-risk countries for corruption). - Ensure availability of adequate analytical resources to investigate foreign bribery. - Strengthen independence of the prosecution and enhance whistleblower protections. - Provide further guidance (e.g., jurisprudence, additional practical information) on the exemption related to “justly required efforts” under the Act on Criminal Liability of Legal Entities. - Make better use of AML/CFT framework to detect foreign bribery, including encouraging designated non-financial businesses and professions (DNFBPs) — e.g., real estate agents, gambling companies, tax advisors and legal professionals — to submit suspicious transaction reports. - Staff agrees with WGB recommendations and urges authorities to implement them. ### AML/CFT assessment and related recommendations - MONEYVAL AML/CFT assessment report and the 2016 National Risk Assessment: - Identified corruption as one of the main proceed-generating crimes, with concerns that the Czech Republic has been used to launder foreign proceeds of corruption. - Recommended further analysis on laundering of foreign proceeds, including through fictitious entrepreneurships and real estate business. - Recognized considerable number of ML convictions but recommended devoting greater resources to large-scale and complex ML prosecutions and aligning prosecutions with key ML risks. - Recognized establishment of a Register of Beneficial Owners and recommended measures to ensure that basic and beneficial ownership information is adequate, accurate and current. - Recommended strengthening the supervisory framework for financial institutions and DNFBPs, including applying dissuasive and proportional sanctions for AML/CFT breaches. - Recognized pro-active engagement by authorities on foreign requests for international cooperation. - Authorities’ reported actions: - Working to implement WGB and AML/CFT recommendations. - Volunteered to be part of IMF initiative to address supply side issues of corruption. - Will present Phase 4 two-year written follow-up report at the WGB Plenary in June 2019, after which the report will be published. - Working to implement the EU’s 5th AML Directive, including strengthening the Register of Beneficial Ownership (e.g., introduce sanctions for lack of compliance). ### Staff appraisal — macroeconomic outlook and policy advice - Near-term and medium-term growth: - The economy is doing well but is up against capacity constraints. - No major imbalances, but growth is expected to slow as supply pressures bite. - External position and exchange rate: - The real exchange rate is moderately undervalued, and likely to appreciate over the medium term. - The REER has appreciated steadily since 2016, but the external position in 2018 was nonetheless moderately stronger than the level consistent with fundamentals and medium-term policies. - The current account balance is expected to converge to a small deficit over the medium term, supported by household income growth and small fiscal deficits. - Policy mix and recommendations: - Current policy mix is appropriate. - Staff favors holding policy conditions as present, with a bias to raising policy interest rates rather than tightening the fiscal stance if inflation pressures were to continue, which would be more consistent with gradual exchange rate appreciation. - Macroprudential measures can help insure that households do not take on too much debt; they should be complemented with measures to enhance housing supply. - If external conditions were substantially worse than expected, first response would be to ease policy rates and allow automatic fiscal stabilizers to work; if shocks are persistent, there is ample space for discretionary fiscal easing. - Long-term priorities: - A durable and coordinated policy agenda that facilitates higher productivity is crucial for raising living standards. - Coordination across government—among ministries, and across central, regional, and municipal bodies—needs improvement to address labor supply, housing, and infrastructure bottlenecks. - Fiscal policy focus: - Emphasize spending and revenue choices that are as friendly as possible to raising growth. - Investment in public goods that boosts productive potential is important, especially as public debt is already low and will decrease further over the next few years, and the costs of funding such investment are still low. - Investment priorities include major physical structures (e.g., roads), child care, and “intangibles” such as education and digital access. - Hard choices needed over social spending ahead of further population aging; otherwise policy should seek efficiency gains. - Targeting extra taxes at particular sectors risks distorting economic incentives for potentially little return in revenues. - Banking and AML/CFT monitoring: - The banking system is stable, well capitalized, and well placed to direct credit toward investment. - Recent ML cases in several EU countries have revealed AML/CFT weaknesses across Europe, heightening concerns about cross-border flows. - Authorities should continue AML/CFT efforts, monitoring financial flows into and out of the Czech Republic, especially those associated with non-resident accounts, and identifying sources of foreign funds. - Authorities should continue to monitor ML risks associated with the real estate sector, including by enhancing data collection on non-residents and beneficial owners. - Procedural recommendation: - Next Article IV consultation recommended on the standard 12-month cycle. ### Key numeric indicators and staff projections (selected) - Real GDP (expenditure) growth: 2018: 2.9; 2019: 2.5; 2020: 2.6; 2021: 2.6; 2022: 2.5; 2023: 2.5; 2024: 2.5 - Unemployment rate (in percent): 2018: 2.2; 2019: 2.2; 2020: 2.3; 2021: 2.5; 2022: 2.8; 2023: 3.0; 2024: 3.2 - Consumer prices (average): 2018: 2.2; 2019: 2.5; 2020: 2.3; 2021: 2.0; 2022: 2.0; 2023: 2.0; 2024: 2.0 - General government revenue (percent of GDP): 2018: 41.7; 2019: 41.8; 2020: 41.6; 2021: 41.5; 2022: 41.4; 2023: 41.3; 2024: 41.2 - General government expenditure (percent of GDP): 2018: 40.8; 2019: 41.6; 2020: 41.7; 2021: 41.7; 2022: 41.8; 2023: 41.7; 2024: 41.6 - Net lending / Overall balance (percent of GDP): 2018: 0.9; 2019: 0.2; 2020: -0.1; 2021: -0.2; 2022: -0.4; 2023: -0.4; 2024: -0.4 - General government debt (percent of GDP): 2018: 32.7; 2019: 31.7; 2020: 30.6; 2021: 29.8; 2022: 29.1; 2023: 28.2; 2024: 27.4 - Current account balance (percent of GDP): 2018: 0.3; 2019: 0.1; 2020: -0.2; 2021: -0.2; 2022: -0.3; 2023: -0.4; 2024: -0.4 - Gross official reserves (billions of euros): 2018: 124.5; 2019: 126.8; 2020: 129.2; 2021: 132.1; 2022: 135.4; 2023: 139.2; 2024: 143.3 - External debt (percent of GDP): 2018: 83.0; 2019: 79.3; 2020: 75.8; 2021: 72.7; 2022: 69.8; 2023: 67.2; 2024: 64.6 - Financial soundness indicator examples (2018): - Regulatory capital to risk-weighted assets: 18.3 - Return on assets: 1.1 - Non-performing loans to total gross loans: 3.1 *Source: IMF staff report (Czech Republic) as provided in the content unit.* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### External position and NIIP - The net international investment position (NIIP) stood at -25 percent of GDP in 2018, having markedly increased from -47 percent of GDP in 2011. - Gross external liabilities declined slightly to 144 percent of GDP in 2018 after a marked increase in 2017 due to inflows related to the FX-floor commitment by the CNB. - Gross external debt remained stable nominally, declining as a share of GDP to 79.5 percent of GDP. - The share of short-term external debt stands at 60 percent in 2018, up from 45 percent in 2015 and 35 percent in 2013. - External liabilities comprise mostly FDI (52.1 percent) while official reserves account for 48 percent of external assets. - The decline in gross liabilities in 2018 was driven primarily by government debt amortization; other investment liabilities also declined after a 12.2 percent of GDP increase in 2017 when commercial bank deposits increased markedly. - Staff assessment: the size and maturity composition of external debt does not present a vulnerability because rollover risk is mitigated by ample banking sector liquidity and the surge in deposits was accompanied by a surge in reserve assets during the FX-floor commitment. ### Current account and trade - The current account (CA) moderated to 0.3 percent of GDP in 2018, down from 1.0 percent of GDP in 2017. - The primary income deficit remained at -5.2 percent of GDP in 2018. - Goods export growth in 2018 was 4.6 percent year-on-year, down from 7.2 percent in 2017. - Private and public investment grew strongly in 2018 by 8.9 percent and 18 percent year-on-year respectively; the public investment increase was fueled by faster absorption of EU funds. - EU funds’ absorption was reflected in a reduced secondary income account deficit despite a nominal increase in secondary income account outflows. - Staff assessment: small CA surpluses have registered since 2014, driven by a growing trade surplus that offsets a large primary income deficit. ### Cyclically-adjusted CA, CA gap, and drivers - The cyclically-adjusted CA stood at a surplus of 0.6 percent of GDP in 2018. - The EBA CA model estimates a CA norm of -1.2 percent of GDP for 2018. - This implies a CA gap of 1.7 percent of GDP (0.6 percent of GDP minus -1.2 percent of GDP). - Decomposition of the CA gap: - Domestic and external policy gaps contribution: 0.8 percentage points. - Estimation residual: 0.9 percentage points. - The policy gap was driven mostly by the fiscal position contribution of 0.9 percentage points. - Household precautionary savings, proxied by the ratio of public expenditure on health to GDP, contributed 0.2 percentage points. - Staff assessment: the CA was moderately stronger than the level consistent with fundamentals and medium-term policies in 2018. - Projection: the CA balance is expected to converge to a small deficit over the medium term, supported by household income growth and small fiscal deficits. ### Real exchange rate (REER) and valuation - The REER has appreciated steadily since 2016 and at a faster pace since the exit from the koruna floor in April 2017. - The annual average ULC-based REER appreciated by 7.1 percent in the period reported; the CPI-based REER appreciated by 3.7 percent (the latter reflected average annual nominal exchange rate appreciation of 3.7 percent). - Staff estimates of valuation: - EBA REER models indicate overvaluation of 14.8 percent (the “index” model) and 19.1 percent (the “level” model), both due to unexplained residuals. - The EBA current account gap implies a REER undervaluation of 3.9 percent, using an elasticity of 0.44. - The EBA external sustainability (ES) approach suggests a small undervaluation of 2 percent. - Staff assessment: given large residuals in REER models and inconsistency of overvaluation with strong export performance, staff assesses the REER to have been moderately undervalued relative to the level consistent with medium-term fundamentals and desirable policy settings. - Staff projects the real exchange rate to appreciate further over the medium term due to Balassa-Samuelson and income-elasticity effects if Czech national income converges to the European mean. - Aggregate estimate cited in overall assessment: the exchange rate is estimated to be moderately undervalued by about 4 (± 2) percent. ### Capital flows and reserves - FDI debt and equity inflows declined in 2018 to 3.5 percent of GDP, from 4.3 percent in 2017. - Gross portfolio debt outflows in 2018 were mostly due to government bond repayments and lower borrowing by financial firms. - Other investment liabilities flows turned negative in 2018 after FX-floor related increases in previous years. - Net capital inflows were 0.4 percent of GDP in 2018. - Gross international reserves remained high at $142.5 billion dollars in 2018 (60 percent of GDP), having increased from $41.6 billion a decade earlier. - The Czech koruna has floated freely and there have been no FX interventions since the koruna floor exit in April 2017. ### Overall assessment and policy implications - Staff summary: the external position in 2018 was moderately stronger than the level consistent with medium-term fundamentals and desirable policy settings. - Estimated CA gap centered on 1.7 percent of GDP, in the range of 0.7 to 2.7 percent of GDP (reflecting uncertainty). - Exchange rate estimated to be moderately undervalued by about 4 (± 2) percent. - Policy implication: should growth continue as in the baseline projection, a policy mix that relies on monetary (rather than fiscal) policy tightening should help alleviate the undervaluation over time. - Staff does not view external sustainability as a concern for the Czech Republic. ### Annex II. Reconciling Wage and Price Inflation — key findings - Nominal wage growth has been considerably higher than CPI inflation since 2014; CPI inflation has trended downward while wages trended upward. - The New Keynesian Phillips Curve (NKPC) framework (hybrid NKPC following Gali and Gertler (1999) and Batini et al. (2005)) is used to study effects of lagged inflation, inflation expectations, the labor income share, and import prices on headline CPI inflation. - Empirical conclusions: - The contribution of the labor share and import prices to inflation is procyclical; recent increases in headline inflation are partially driven by upward pressure from increases in the labor share. - Inflation expectations are the main contributor to headline inflation over the past two decades; this indicates inflation expectations in the Czech Republic are well anchored. - Lagged inflation, the labor share, and import prices have positive and non-negligible coefficients but are not econometrically significant in the reduced-form estimates. - Model and data notes: - The hybrid NKPC specification used: π_t = γ_b π_{t−1} + γ_f E_t π_{t+1} + λ mĉ_t, where mĉ contains labor share and imported prices. - Data span: 1999:Q1 to 2018:Q4; series from the Czech Statistical Office, the Czech Central Bank, and Eurostat; series are seasonally adjusted. - Labor income share is adjusted by excluding the public sector and removing indirect taxes from value-added; the adjusted labor income share is smaller than the unadjusted measure. - Estimation approach: - The reduced-form Equation (4) is estimated by GMM using the lead of CPI inflation for expectations and instruments including four lags of headline inflation, the labor share, the input price index, and a measure of the output gap. - Deviations for labor share and import price index are measured as deviations from Hodrick-Prescott filtered trends. - Reduced-form GMM results (selected coefficients from Table 1): - Inflation Expectations coefficient: .6174 (Standard Error .1606; z 3.84; P>|z| 0.000; 95% CI .3025 to .9322) — statistically significant. - Lagged Inflation coefficient: .1363 (Standard Error .1231; z 1.11; P>|z| 0.268; 95% CI -.1050 to .3775) — not significant. - Labor Share coefficient: .0669 (Standard Error .0526; z 1.27; P>|z| 0.203; 95% CI -.0361 to .1700) — not significant. - Import Prices coefficient: .01207 (Standard Error .0210; z 0.57; P>|z| 0.566; 95% CI -.0291 to .0532) — not significant. - Interpretation: inflation expectations play a significant role in explaining realized headline inflation; relationships of wage costs and CPI inflation are more complex than the simple model assessed. *Source: 1czeea2019001 - Annex I. External Sector Assessment* ### 11. The labor share and import prices have procyclical contributions to headline inflation. ### 11. The labor share and import prices have procyclical contributions to headline inflation. ### Contributions to headline inflation and model fit - Inflation expectations have the largest contribution to the fit of the model; the estimate is in line with those in the literature. - Throughout the past two decades, periods of low headline inflation have been accompanied with downward pressure from the labor share and the import price index and vice versa. - Compared to the GMM results in Table 1, the OLS estimation results in smaller coefficients for inflation expectations and lagged inflation and similar coefficients for the labor share and the import prices. - Only the coefficient of inflation expectations is statistically significant; inflation expectations have the largest contribution in explaining headline inflation, suggesting that inflation expectations are well anchored. - The contribution of the labor income share and import prices to headline inflation is procyclical. ### Recent dynamics (since 2016) - During the past few quarters, the contribution of the labor share has intensified the rise of headline inflation. - Headline inflation has increased since 2016, mainly due to the rise in inflation expectations. - The upward trend has been strengthened by the positive contribution of lagged inflation and the jump in the labor income share. ### Parameter estimates from the hybrid NKPC and interpretation - Using estimated coefficients and relationships specified in equations (5–7), the solved parameter ranges are: - 훽=[0.63,0.80] - 휃=[0.69,0.95] - 휔=[0.02,0.23] - Interpretation and comparisons: - The estimated range for β is lower than would have been expected from the theory; it suggests that firms heavily discount the future and do not put high weights on inflation expectations. (When β is low, firms are relatively more responsive to deviations of marginal cost from trend when setting prices, all else equal.) - The lower bound estimated for θ is smaller than the estimates presented in Gali and Gertler (1999), who find that θ varies between 0.81 and 0.88. - Results suggest that, on average, firms reset their prices every three periods. The upper bound of θ implies firms reset prices every twenty quarters, which the authors view as not plausible. - Gali and Gertler (1999) estimate ω (the share of backward-looking firms) to range between 0.26 and 0.49, higher than the estimates here. - Note: β is the discount factor in a setting that periods are one quarter long. ### Policy-relevant findings and implications - There is a positive relationship between wage costs (labor income share) and inflation, but inflation expectations play a very important role and dominate statistically. - The procyclical contributions of the labor income share and import prices imply that these factors amplify cyclical swings in headline inflation. - The dominance and statistical significance of inflation expectations in explaining headline inflation point to the importance of maintaining well-anchored expectations for monetary policy effectiveness. *Source: IMF staff calculations, Czech Republic chapter (figures and text as presented).* ### Annex VI. Implementation of the 2018 Article IV ### Annex VI. Implementation of the 2018 Article IV ### Key Recommendations and Implementation Status - Monetary - Recommendation: Make policy rate increases gradual and guided by the data; avoid FX interventions. - Implementation status: Implemented. The CNB has moved to gradually normalize monetary conditions. The repo rate has been raised to 1.75 percent. There have been no FX interventions since the currency floor was removed. - Macroprudential - Recommendation: Make LTV, DTI, and DSTI restrictions binding. - Implementation status: Not implemented. Legislation providing powers over the LTV, DTI and DSTI was voted down in the Parliament. - Fiscal - Recommendation: Increase public investment spending, establish a unified and transparent infrastructure plan. - Implementation status: In progress. Public investment increased in 2018 and is projected to accelerate this year, mainly due to increased absorption of EU funds. - Recommendation: Improve the debt management framework. - Implementation status: In progress. The debt management office has started to increase the maturities. - Structural - Recommendation: Boost potential growth by increasing labor market participation of certain population groups and enhancing investment in human and physical capital. - Implementation status: In progress. Several measures were implemented, including: - increase in tax deductions concerning children and child allowances; - introduction of weekly paternity leave; - guaranteed placement in nursery schools for children aged 3 and above; - changes to education funding to improve the quality of regional education; - vocational training reform to increase coordination with businesses and improving the skills matching; - new amendment to the Building Act simplifying the conditions for starting construction and accelerating building permit proceedings. ### Fund Relations (selected indicators and status as of April 30, 2019) - Membership Status: Joined 01/01/1993; Article VIII - General Resources Account (SDR Million; Percent of Quota) - Quota: 2,180.20; 100.00 - IMF’s Holding of Currency (Holding Rate): 1,763.69; 80.90 - Reserve Tranche Position: 416.52; 19.10 - SDR Department (SDR Million; Percent of Quota) - Net Cumulative Allocation: 780.20; 100.00 - Holdings: 456.89; 58.56 - Outstanding Purchases and Loans: None - Financial Arrangements (Amount Approval Date; Amount Expiration Date; Approved (SDR Million); Drawn (SDR Million)) - Stand-By: March 17, 1993; March 16, 1994; 177.00; 70.00 - Projected Payments to Fund (SDR Million; based on existing use of resources and present holdings of SDRs) - Charges/Interest: 2019: 2.75; 2020: 3.70; 2021: 3.70; 2022: 3.70; 2023: 3.70 - Total: 2019: 2.75; 2020: 3.70; 2021: 3.70; 2022: 3.70; 2023: 3.70 - Exchange Rate Arrangement: The de jure exchange rate arrangement is floating. The de jure and de facto exchange rate arrangements are classified as floating. - Last Article IV Consultation: The last Article IV consultation with the Czech Republic was concluded on June 22, 2018. The staff report and the press release were published on June 26, 2018. - FSAP Participation and ROSCs: An FSAP was carried out in late 2000/ early 2001. An FSAP update was carried out in 2011. ROSCs on: banking supervision; data dissemination; fiscal transparency; securities market; and transparency of monetary and financial policies were published on July 1, 2000. ### Technical Assistance (1991–2018) — Departmental Highlights - FAD: VAT administration and public financial management assistance (December 1991–September 1993; multiple follow-up visits). - MCM: Monetary management, foreign exchange operations, banking supervision, inflation targeting, integrated financial sector supervision (February 1992 onward; long-term resident expert assignment in 1992; various visits through the 1990s). - RES: Inflation targeting technical assistance (June 1999, September 1999, June–August 2000). - STA: Money and banking statistics; Balance of payments; Government finance; Implementing GFSM 2001 (periodic assistance and pilot projects from 1993 onward). ### Statistical Issues - Assessment of Data Adequacy for Surveillance - General: Data provision is adequate for surveillance. - National Accounts: - The Czech Statistical Office (CSO) compiles and disseminates annual and quarterly national accounts on ESA2010 basis. - The CSO compiles annual Supply-Use Tables (SUT) by 88 types of economic activities and 88 products, but there is room for improvements. For example, discrepancies between GDP estimates based on the production method and the expenditure method are subsumed under changes in inventories, which sometimes significantly changes the first estimates of inventories obtained directly from the surveys. - Price Statistics: - The CSO compiles and disseminates a monthly consumer price index (CPI) using a weighting structure based on expenditure data from 2016. - A monthly Harmonized Index of Consumer Prices (HICP) is disseminated according to European regulations. - The producer price index is released monthly with coverage including manufacturing, construction, agriculture, and select business services (business to business only). - The CSO compiles and releases monthly import and export price indexes based on data collected directly from establishments engaged in export and/or import activities. - Government Finance Statistics: - Fiscal data in the GFSM 2014 framework is reported through the Eurostat convergence project with the IMF. - Annual and quarterly fiscal data are compiled on ESA2010 basis by the CSO, including non-financial accounts, financial accounts, and financial balance sheets. - The Ministry of Finance uses the ESA methodology for the Convergence Program targets. - Government transactions are recorded on an accrual basis. - Monetary and Financial Statistics: - Monthly MFS data is sent to STA by ECB and is based on standardized report forms (SRFs). - Monetary survey data is also provided to the European Department for policy purposes. - MFS data covers the central bank (CNB) and the other depository corporations which comprises other monetary financial institutions as defined under the European Union law. - Data from the other financial corporations are currently not compiled. - The Czech Republic reports data on some basic series and indicators of the Financial Access Survey (FAS), including the two indicators adopted by the UN to monitor Target 8.10.1 of the Sustainable Development Goals (SDGs). - Financial sector surveillance: - CNB reports financial soundness indicators for Deposit Takers on a quarterly basis to STA. - External sector statistics: - The CNB compiles and disseminates balance of payments and international investment position statistics in line with BPM6 and in accordance with legal requirements of the ECB and Eurostat. - CNB generally derives balance of payments financial account transactions from changes in position data adjusted by exchange rate, price, and other changes. - The CNB monthly disseminates the data template on International Reserves and Foreign Currency Liquidity. - Czech Republic participates in the Coordinated Direct Investment Survey (CDIS) and the Coordinated Portfolio Investment Survey (CPIS), and reports quarterly external debt statistics to the World Bank’s Quarterly External Debt Statistics (QEDS) database. - Data Standards and Quality - The Czech Republic adheres to the SDDS Plus since April 2016. - Data ROSC was published on July 1, 2000. ### Table of Common Indicators Required for Surveillance (As of June 12, 2019) — Selected entries - Exchange Rates: Date of Latest Observation: current; Date Received: current; Frequency of Data: D; Frequency of Reporting: D; Frequency of Publication: D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation: Apr. 2019; Date Received: May 2019; Frequency of Data: D; Frequency of Reporting: M; Frequency of Publication: M - Reserve/Base Money: Date of Latest Observation: Apr. 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - Broad Money: Date of Latest Observation: Apr. 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - Central Bank Balance Sheet: Date of Latest Observation: May 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - Consolidated Balance Sheet of the Banking System: Date of Latest Observation: Mar. 2019; Date Received: Apr. 2019; Frequency: M; Reporting: M; Publication: M - Consumer Price Index: Date of Latest Observation: Apr. 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation: 2018 Q4; Date Received: May 2019; Frequency: Q; Reporting: Q; Publication: Q - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Date of Latest Observation: Mar 2019; Date Received: Apr. 2019; Frequency: M; Reporting: M; Publication: M - Stocks of Central Government and Central Government-Guaranteed Debt: Date of Latest Observation: 2018 Q4; Date Received: May 2019; Frequency: Q; Reporting: Q; Publication: Q - External Current Account Balance: Date of Latest Observation: Mar. 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - Exports and Imports of Goods and Services: Date of Latest Observation: Mar. 2019; Date Received: May 2019; Frequency: M; Reporting: M; Publication: M - GDP/GNP: Date of Latest Observation: 2019 Q1; Date Received: May 2019; Frequency: Q; Reporting: Q; Publication: Q - Gross External Debt: Date of Latest Observation: 2018 Q4; Date Received: Mar. 2019; Frequency: Q; Reporting: Q; Publication: Q - International Investment Position: Date of Latest Observation: 2018 Q4; Date Received: Mar. 2019; Frequency: Q; Reporting: Q; Publication: Q *Prepared by European Department; May 28, 2019.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1czeea2019001.pdf_