IMF Executive Board Concludes 2021 Article IV Consultation with Czech Republic
IMF News, January 27, 2022
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- Published: January 27, 2022
Overview and recent performance
- Real GDP declined by 5.8 percent in 2020 and is estimated to have rebounded by about 3 percent in 2021.
- Strong and swift policy support softened the downturn and helped protect people, businesses, and jobs.
- Inflation in 2021 reached elevated levels on the back of high energy prices, supply chain disruptions, and tight labor and housing markets.
- Macro-financial vulnerabilities stem largely from record house price and mortgage credit growth.
Outlook and risks
- Risks to the outlook are tilted to the downside and clouded by unusually high uncertainty due to the ongoing spread of the Omicron variant and high infection rates.
- The economy is projected to recover further in the coming years and growth is estimated to converge to about 2½ percent in the medium term.
- After significantly increasing in the first half of 2022, inflation is projected to converge back to the Czech National Bank’s (CNB) 2 percent target by late 2023, assuming energy prices stabilize, supply disruptions ease, and higher policy rates reduce demand pressures.
Executive Board assessment and policy guidance
- Directors commended the authorities’ comprehensive policy response to the pandemic, assisted by strong policy frameworks and prudently accumulated buffers.
- Near-term: Support to the economy should remain flexible until the recovery is broadly entrenched.
- Medium-term: Sound policies are needed to support macro-financial stability and promote sustainable, greener and inclusive growth.
- Monetary policy:
- Directors agreed that the monetary policy stance is appropriate to counteract inflation pressures and manage inflation expectations.
- Future policy action should remain data dependent and carefully weigh risks from raising rates too quickly against those from overshooting inflation.
- Fiscal policy:
- Directors agreed that ample fiscal space had served the Czech Republic well during the crisis.
- While a flexible fiscal stance should be maintained in the near-term, Directors saw merit in a more ambitious consolidation path over the medium-term, including both expenditure and growth-friendly revenue measures, to regain policy space.
- Recently-adopted measures with permanent budgetary implications should be unwound as the recovery takes hold.
- Directors urged the authorities to address long-run spending issues related to growing demographic pressures and welcomed the authorities’ commitment to put forward a pension system reform by end-2023.
- Financial sector policy:
- Directors welcomed the resilience of the banking sector during the pandemic.
- They noted that the increased concentration of the banking system in residential mortgages amid declining risk weights may pose risks going forward.
- Directors saw scope to enhance the existing risk-based prudential policy framework and to tighten macroprudential policy as needed to address household vulnerabilities.
- Structural policies:
- Recovery offers an opportunity to increase productivity growth, labor participation and investment.
- Policies should ensure workers are equipped with technical and digital skills, encouraging broad-based innovation.
- Well-targeted measures to capitalize on SMEs’ potential and to improve the implementation of insolvency procedures can minimize barriers to corporate restructuring, spur capital reallocation and improve recovery rates.
- A strategy based on enhanced carbon pricing, reinforced by broader incentives across sectors, will help achieve the country’s climate goals.
- Continued efforts to enhance governance and upgrade the AML/CFT framework are also important.
Key statistics and staff projections (selected)
- Real GDP (expenditure): 2018: 3.2; 2019: 3.0; 2020: -5.8; 2021: 2.9; 2022: 3.6; 2023: 4.4; 2024: 3.5; 2025: 3.1; 2026: 2.5.
- Domestic demand: 2018: 4.8; 2019: 6.7; 2020: -0.3; 2021: 4.0; 2022: 2.6.
- Investment (annual percent change): 2018: 7.7; 2019: 4.5; 2020: -10.2; 2021: 12.6; 2022: -9.4; 2023: 7.0; 2024: 6.0.
- Exports (annual percent change): 2018: 3.7; 2019: 1.5; 2020: -6.9; 2021: 5.2; 2022: 9.3.
- Consumer prices (average): 2018: 2.1.
- Consumer prices (end-of-period): 2018: 5.3; 2019: 4.1.
- GDP deflator (average): 2018: 3.9; 2019: 1.7.
- Broad money (M3) (end of year, percent change): 2018: 6.3; 2019: 10.0.
- Private sector credit (end of year, percent change): 2018: 6.9.
- Three-month interbank rate (year average): 2018: 1.3; 2019: 0.9.
- Ten-year government bond (year average): 2018: 1.1.
- Nominal effective exchange rate (index, 2005=100): 2018: 101.5; 2019: 100.9; 2020: 99.7.
- Real effective exchange rate (index, CPI-based; 2005=100): 2018: 99.1; 2019: 99.4; 2020: 100.0.
- General government revenue (percent of GDP): 2018: 41.5; 2019: 41.4; 2020: 41.6; 2021: 40.2; 2022: 40.3; 2023: 39.8; 2024: 39.5; 2025: 39.4.
- General government expenditure (percent of GDP): 2018: 40.6; 2019: 41.1; 2020: 47.2; 2021: 47.4; 2022: 44.6; 2023: 44.3; 2024: 43.3; 2025: 42.5; 2026: 41.9.
- Net lending / Overall balance (percent of GDP): 2018: -5.6; 2019: -7.2; 2020: -4.4; 2021: -3.9; 2022: -3.0; 2023: -2.5.
- Primary balance (percent of GDP): 2018: 0.8; 2019: -5.0; 2020: -6.5; 2021: -3.6; 2022: -3.2; 2023: -2.7; 2024: -2.2; 2025: -1.8.
- Structural balance (percent of potential GDP): 2018: -0.8; 2019: -5.1; 2020: -4.5.
- General government debt (percent of GDP): 2018: 32.1; 2019: 30.0; 2020: 37.7; 2021: 43.5; 2022: 45.0; 2023: 46.6; 2024: 48.0; 2025: 48.7; 2026: 49.1.
- Trade balance (goods and services, percent of GDP): 2018: 5.9; 2019: 6.8; 2020: 5.7.
- Current account balance (percent of GDP): 2018: 0.4; 2019: -0.2.
- Gross international reserves (billions of euros): 2018: 124.5; 2019: 133.4; 2020: 135.4; 2021: 142.9; 2022: 154.9; 2023: 163.9; 2024: 172.9; 2025: 181.9; 2026: 190.9.
- Gross international reserves (in months of imports of goods and services): 2018: 10.5; 2019: 11.8; 2020: 10.7; 2021: 10.9.
- Gross international reserves (in percent of short term debt, remaining maturity): 2018: 118.9; 2019: 129.9; 2020: 141.1; 2021: 140.9; 2022: 144.6; 2023: 150.2; 2024: 154.0; 2025: 156.8; 2026: 158.4.
- Nominal GDP (USD billions): 2018: 249.0; 2019: 252.5; 2020: 245.3; 2021: 281.90; 2022: 310.00; 2023: 334.20; 2024: 356.00; 2025: 378.30; 2026: 398.50.
- Population (millions): 2018: 10.6; 2019: 10.8.
- Real GDP per capita (annual percent change): 2018: -6.2; 2019: 4.3.
- GDP per capita (USD): 2018: 23,464; 2019: 23,709; 2020: 22,943; 2021: 26,271; 2022: 28816.56; 2023: 31006.45; 2024: 33001.00; 2025: 35062.62; 2026: 36932.12.
IMF Executive Board press release, January 27, 2022.
