## Czech Republic: IMF Executive Board Concludes 2018 Article IV Consultation _IMF News, June 26, 2018_ ## Source details **Canonical URL:** [Czech Republic: IMF Executive Board Concludes 2018 Article IV Consultation](https://www.imf.org/en/news/articles/2018/06/26/pr18258-imf-executive-board-concludes-2018-article-iv-consultation-with-the-czech-republic) ## Other formats - [Markdown version](/en/news/articles/2018/06/26/pr18258-imf-executive-board-concludes-2018-article-iv-consultation-with-the-czech-republic/index.md) - [Structured JSON version](/en/news/articles/2018/06/26/pr18258-imf-executive-board-concludes-2018-article-iv-consultation-with-the-czech-republic/index.json) - [Bundle manifest](/en/news/articles/2018/06/26/pr18258-imf-executive-board-concludes-2018-article-iv-consultation-with-the-czech-republic/bundle-manifest.json) ## Bibliographic details - Published: June 26, 2018 --- ### Growth and Outlook - Real GDP grew 4.4 percent in 2017, led by strong domestic demand. - Growth is projected at 3.7 percent for 2018. - Risks: labor shortages constraining future growth; decline in global trade (such as from increased protectionism) is a major risk for a small, externally dependent economy. - Longer-term growth will depend on productivity compensating for a decline in labor supply. ### Labor Market and Wages - Unemployment rate fell to a record low of 2.3 percent in April 2018, even with increased participation. - Real wage growth reached 6.5 percent in Q1 2018. - Firms report hiring problems, especially for workers with appropriate skills, with more than one vacancy per unemployed person. ### Inflation and External Sector - Headline and core inflation are close to the target of 2 percent. - The nominal effective exchange rate appreciated by 6 percent since the CNB lifted the floor in April 2017, notwithstanding some recent depreciation. ### Monetary Policy - The central bank has gradually raised the policy rate to 0.75 percent after foreign exchange interventions ceased in April 2017. - Directors concurred that gradual normalization remains appropriate given uncertainty about the inflation outlook and interest rates still close to zero. - Directors noted the CNB should communicate readiness to raise rates earlier than currently projected if inflationary risks intensify. ### Financial Sector and Macroprudential Policy - The banking system is well capitalized, liquid, and profitable. - Private credit growth is in line with nominal GDP growth; household lending is growing more quickly and some households have become highly leveraged. - The CNB announced recommended limits to debt-to-income and debt-service-to-income ratios and further tightened the macroprudential stance. - Directors recommended granting the CNB binding powers over loan‑to‑value, debt‑to‑income, and debt‑servicing‑to‑income ratios to ensure enforceability and underscored the importance of better access to data for effective supervision. ### Fiscal Developments - Strong tax revenues and lower capital and social benefits spending resulted in an overall balance of 1.6 percent of GDP in 2017. - Public debt fell to 35 percent of GDP (driven by the fiscal balance and a negative interest-growth differential). - The overall balance is expected to be 1.6 percent of GDP in 2018 and then gradually ease to about 1 percent of GDP. - Directors welcomed continued fiscal discipline and emphasized avoiding procyclicality; they noted budgetary demands will increase over the longer term as the population ages and urged addressing long‑run spending issues related to healthcare and pensions. ### Structural Reforms and Productivity - Recent measures: simplification of building permits procedures; reform of regional education funding; vocational training reform to increase coordination with businesses. - Remaining challenges: increase participation and productivity as the working population ages and shrinks. - Directors recommended policies to increase participation of young women and older workers and measures to facilitate higher productivity, including: - realigning tax incentives to guarantee the best use of resources, - enhancing the efficiency of public services, - improving the business environment for smaller and younger firms, - having a unified long‑term plan for infrastructure, - enhancing the framework for life‑long learning. ### Executive Board Assessment - Directors commended the Czech Republic’s strong economic performance and noted strong fundamentals and a favorable outlook. - They highlighted the challenge posed by a declining labor force for long‑term growth. - Directors broadly concurred on gradual monetary normalization and welcomed additional macroprudential measures. - They suggested greater elaboration on assumptions justifying the staff’s external sector assessment would be useful. - It is expected that the next Article IV consultation will take place on the standard 12‑month cycle. ### Selected Key Economic Indicators (2017 actual; 2018–23 staff projections unless noted) - Real GDP (expenditure): 4.4 (2017); 3.7 (2018); 3.2 (2019); 2.5 (2020); [2021–23 entries in table] - Domestic demand: 4.0 (2017); 3.1 (2018) - Real wage growth: 6.5 percent (Q1 2018) - Unemployment rate: 2.3 percent (April 2018) - Policy rate (CNB): 0.75 percent (after gradual increases) - Nominal effective exchange rate: appreciated by 6 percent since April 2017 - Overall balance: 1.6 percent of GDP (2017); 1.6 percent of GDP (2018 expected); about 1 percent of GDP (later) - General government revenue: 40.4 percent of GDP (2017); 41.5 percent (2018) - General government expenditure: 40.0 percent of GDP (2017); 40.6 percent (2018) - General government debt: 33.1 percent of GDP (2017); 31.7 percent (2018); projections decline thereafter (table) - Gross international reserves (billions of euros): 122.6 (2017); 122.2 (2018); 121.9 (2019) - Nominal GDP (USD billions): 213.7 (2017); 250.9 (2018); projections through 351.5 (2023) - GDP per capita (USD): 20,201 (2017); 23,690 (2018); projections through 33,000 (2023) *Press Release No. 18/258 — IMF Communications Department, June 26, 2018.* --- ## References - [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg) - [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx) - [Czech Republic and the IMF](http://www.imf.org/external/country/CZE/index.htm) - [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [http://www.imf.org/external/np/sec/misc/qualifiers.htm.](http://www.imf.org/external/np/sec/misc/qualifiers.htm) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2018/06/26/pr18258-imf-executive-board-concludes-2018-article-iv-consultation-with-the-czech-republic_