IMF Executive Board Concludes 2023 Article IV Consultation with Czech Republic
IMF News, January 29, 2024
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- Published: January 29, 2024
Overview and near-term outlook
- On January 22, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV consultation with Czech Republic.
- Economic activity slowed notably in 2023 but a rebound is expected in 2024, driven by a recovery in domestic demand.
- Staff projections:
- Real GDP growth (expenditure): 2023: -0.4 percent; 2024: 1.2 percent.
- Disinflation is expected to continue and inflation is projected to meet the Czech National Bank’s target by early 2025.
- Ongoing disinflation reflects diminishing commodity price shocks and a substantial decrease in domestic demand pressures; falling core inflation primarily reflects the dampening effect of the tight monetary policy stance.
- Continued drops in commodity prices (food and fuel) are expected to support a fall in administered price inflation.
Risks to the outlook
- Growth risks are tilted to the downside; inflation risks are tilted to the upside.
- Downside growth risks include:
- Spillovers from a weaker global outlook.
- Possible renewed surge in global energy prices.
- New supply chain disruptions.
- Increase in geopolitical tensions and potential broader geo-economic fragmentation.
- Heightened global financial volatility that could negatively impact pricing and availability of financing.
- Upside inflation risks include:
- Inflation expectations becoming untethered given high inflation, a tight labor market, and the currently elevated but declining saving rate.
- Strong wage growth combined with a failure of profit margins to compress rapidly during recovering growth, leading to stronger repricing of goods and services.
- New global energy or commodity price shocks or a reversal of the expected decrease in administered prices.
- An abrupt return of the household saving rate to near long-term average levels, boosting household consumption and demand-driven inflationary pressures.
- A falling differential in policy rates vis-a-vis major central banks or geopolitical shifts in regional sentiment could exert depreciation pressure on the koruna and add to inflationary pressures.
Executive Board assessment and policy recommendations
- Directors commended the authorities for maintaining macroeconomic and financial stability amid challenging conditions and welcomed the expected economic recovery in 2024.
- Monetary policy:
- Maintaining a tight monetary policy stance remains appropriate to ensure inflation returns to target in a timely manner.
- The central bank should adopt a cautious, data‑driven approach to potential further rate cuts.
- Fiscal policy:
- Directors welcomed the authorities’ commitment to fiscal prudence and emphasized the need to remain flexible given the uncertain outlook.
- If current conditions persist, Directors broadly concurred that further fiscal consolidation is needed to support disinflation efforts and reach the medium‑term objective in the Fiscal Responsibility Act by 2028.
- Consolidation could help build fiscal buffers in the face of aging pressures and support economic transformation.
- Importance of protecting the most vulnerable and support for pension system reforms were emphasized.
- Financial sector and macroprudential policy:
- Directors welcomed the resilience of the financial sector: banks are well‑capitalized, liquid, and profitable while asset quality remains strong.
- Macroprudential policy settings are broadly adequate, but vigilance is needed; pockets of vulnerabilities warrant close monitoring, including in the housing market, foreign currency corporate loans, and cyber security.
- Several Directors found no immediate need to reactivate debt‑ and debt‑service to income ratios at this stage.
- Improvements in risk‑based supervision were welcomed and further progress encouraged.
- Continued efforts to strengthen safeguards against AML/CFT risks were recommended.
- Structural reforms:
- Addressing structural challenges from demographic dynamics and the global energy transition is critical for sustainable growth.
- Structural reform policies should facilitate reallocation of labor and capital and advance technological innovation to support economic transformation toward a greener and more digitalized economy.
- Directors welcomed the authorities’ decarbonization strategy and noted the need for continued efforts to meet climate targets.
Selected economic indicators, 2020–28 (staff projections)
- NATIONAL ACCOUNTS (Real growth rates by year)
- Real GDP (expenditure): 2020: -5.5; 2021: 3.5; 2022: 2.4; 2023: -0.4; 2024: 1.2; 2025: 2.5; 2026: 2.7; 2027: 2.6; 2028: (not listed in the row).
- Domestic demand: 2020: -5.6; 2021: 8.2; 2022: -3.7; 2023: 0.6; 2024: 2.3.
- Consumption (aggregate): 2020: -4.1; 2021: 3.3; 2022: -0.3; 2023: -1.5; 2024: 2.2.
- Public consumption: 2020: 4.2; 2021: 1.4; 2022: 1.1.
- Private consumption: 2020: -7.2; 2021: 4.1; 2022: -0.8; 2023: -3.2; 2024: 3.0; 2025: 3.2.
- Investment: 2020: -9.3; 2021: 20.4; 2022: 8.8; 2023: -8.2; 2024: -2.7; 2025: 2.1.
- Exports: 2020: -8.0; 2021: 6.8; 2022: 7.2; 2023: 5.0; 2024: 5.1; 2025: 5.2; 2026: 5.4.
- Imports: 2020: 13.2; 2021: 6.3; 2022: 1.9; 2023: 4.9; 2024: 5.3.
- Contribution to GDP (net exports): 2020: -5.1; 2021: 7.8; 2022: 1.5; 2023: -3.0.
- Investment (percent of GDP): 2020: 26.5; 2021: 26.0; 2022: 26.8; 2023: 25.9; 2024: 26.2; 2025: 25.6; 2026: 25.5; 2027: 25.7.
- Gross domestic investments (percent of GDP): 2020: 30.2; 2021: 32.2; 2022: 28.9; 2023: 27.2; 2024: 26.7; 2025: 26.6.
- Gross national savings (percent of GDP): 2020: 28.1; 2021: 27.5; 2022: 27.0; 2023: 27.4; 2024: 28.0; 2025: 28.6.
- Output gap (percent of potential output): 2020: -0.6; 2021: 0.8; 2022: -0.5; 2023: 0.5.
- Potential growth (year-specific entries): 2020: -2.2; 2021: 2.8; 2022: 1.0; 2023: 2.9.
- LABOR MARKET
- Employment: 2020: -1.4; 2021: 0.3; 2022: -1.6; 2023: -0.1.
- Total labor compensation (growth): 2020: 6.1; 2021: 7.9; 2022: 3.9; 2023: 4.3; 2024: 4.4; 2025: 4.8.
- Unemployment rate (average, in percent): (values not provided in the table excerpt).
- PRICES
- Consumer prices (average): 2020: 3.8; 2021: 15.1; 2022: 10.6; 2023: 2.0.
- Consumer prices (end-of-period): 2020: 6.6; 2021: 15.8; 2022: 7.4.
- Producer price index (average): 2020: 7.1; 2021: …
- GDP deflator (average): 2020: 8.6; 2021: 9.0; 2022: 3.7; 2023: 1.6; 2024: 1.7.
- MACRO-FINANCIAL
- Money and credit (end of year, percent change): Broad money (M3): 2020: 10.0; 2021: 8.5; 2022: 4.6.
- Private sector credit: 2020: 3.6; 2021: 8.9; 2022: 4.5; 2023: 4.0.
- Interest rates (in percent, year average): Three-month interbank rate and Ten-year government bond: (values not provided in the excerpt).
- Exchange rate indices:
- Nominal effective exchange rate (index, 2005=100): 2020: 99.7; 2021: 103.6.
- Real effective exchange rate (index, CPI-based; 2005=100): 2020: 100.0; 2021: 104.6.
- PUBLIC FINANCE (percent of GDP)
- General government revenue: 2020: 41.5; 2021: 41.4; 2022: 42.6; 2023: 41.9; 2024: 41.6.
- General government expenditure: 2020: 47.2; 2021: 46.5; 2022: 44.6; 2023: 46.2; 2024: 44.1; 2025: 43.3; 2026: 43.0; 2027: 42.2.
- Net lending / Overall balance: 2020: -5.8; 2021: -3.6; 2022: -1.7; 2023: -1.2.
- Primary balance: 2020: -5.2; 2021: -4.5; 2022: -2.8; 2023: -0.7; 2024: -0.2.
- Structural balance (percent of potential GDP): 2020: -5.4; 2021: -3.4; 2022: -2.1; 2023: -1.8; 2024: -1.3.
- General government debt: 2020: 37.7; 2021: 42.0; 2022: 44.2; 2023: 44.3; 2024: 44.0; 2025: 43.6; 2026: 42.5.
- BALANCE OF PAYMENTS (percent of GDP)
- Trade balance (goods and services): 2020: 6.7.
- Current account balance: 2020: -6.1; 2021: -0.9.
- Gross international reserves (billions of euros): 2020: 135.4; 2021: 153.3; 2022: 131.3; 2023: 140.3; 2024: 149.3; 2025: 158.3; 2026: 166.3; 2027: 172.3; 2028: 176.9.
- Reserves (in months of imports of goods and services): 2020: 11.9; 2021: 11.0; 2022: 7.6; 2023: 8.4.
- Reserves (in percent of short term debt, remaining maturity): 2020: 142.8; 2021: 136.7; 2022: 116.2; 2023: 117.5; 2024: 119.3; 2025: 122.4; 2026: 126.5; 2027: 131.2; 2028: 137.0.
- MEMORANDUM ITEMS
- Nominal GDP (USD billions): 2020: 246.0; 2021: 281.8; 2022: 290.5; 2023: 335.5; 2024: 350.4; 2025: 368.4; 2026: 385.1; 2027: 400.1; 2028: 416.8.
- Population (millions): 2020: 10.7; 2021: 10.5; 2022: 10.8; 2023: 11.1.
- Real GDP per capita: 2020: -2.0.
- GDP per capita (USD thousands): 2020: 22.98; 2021: 26.79; 2022: 26.83; 2023: 30.50; 2024: 31.61; 2025: 33.33; 2026: 34.94; 2027: 36.42; 2028: 38.06.
IMF Communications Department; Press Release No. 24/26; January 29, 2024 — Executive Board conclusions on the 2023 Article IV consultation with Czech Republic.
