IMF Executive Board Concludes Article IV Consultation with Czech Republic
IMF News, June 13, 2019
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Bibliographic details
- Published: June 13, 2019
Background and timing
- Press Release No. 19/215
- Date: June 13, 2019; Executive Board conclusion date: June 12, 2019
- Press officer: Meera Louis; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
Current economic assessment
- The economy is doing well but supply constraints are biting.
- Growth has slowed as the economy has reached capacity limits, with very low unemployment even as participation has increased.
- Recent wage increases have been very strong, ahead of productivity.
- So far, inflation remains contained.
- The economy continues to run a current account surplus, even though domestic absorption has picked up.
- The housing market is pressured, especially in metropolitan areas.
Growth outlook and inflation
- Growth is forecast to moderate to 2.5 percent for 2019 and continue around that rate over the medium term.
- Near term: domestic demand expected to remain strong but slow down.
- External demand: expected to slow in the first half of the year and recover in the second half.
- Outlook for inflation—and hence the monetary stance—is uncertain, depending on whether domestic inflationary or imported disinflationary pressures dominate.
- Risks to the outlook are mainly external and to the downside (examples cited: a disorderly Brexit or further weakness in Germany).
Executive Board assessment (endorsing staff appraisal)
- The economy is doing well but is up against capacity constraints; no major imbalances, but growth is expected to slow as supply pressures bite.
- The real exchange rate (REER) 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.
- The 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, but should be complemented with measures to enhance housing supply.
- If external conditions were to be substantially worse than expected, the 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.
Longer-term policy priorities
- A durable and coordinated policy agenda that facilitates higher productivity is crucial for staying on a path of increasing living standards.
- Coordination across government—among ministries, and across the layers of central, regional, and municipal bodies—needs improvement to implement plans effectively and address bottlenecks in labor supply, housing, and infrastructure.
- Fiscal policy focus:
- Emphasize spending and revenue choices that are as friendly as possible to raising growth.
- Priority for investment in public goods that boost productive potential, especially as public debt is already low and will decrease further over the next few years; financing costs remain low.
- Investment includes major physical structures (roads), resources such as child care, and “intangibles” such as education and digital access.
- Hard choices will be needed over social spending ahead of further population aging; otherwise, seek efficiency gains.
- Targeting extra taxes at particular sectors risks distorting economic incentives for potentially little return in revenues.
Financial sector and AML/CFT
- The banking system is stable, well capitalized, and well placed to direct credit toward investment.
- Recent cases of money laundering (ML) in several EU countries have revealed weaknesses in AML/CFT regimes across Europe, heightening concerns about cross-border flows.
- Recommendations:
- Continue AML/CFT efforts, monitoring financial flows coming into and going out of the Czech Republic, especially those associated with non-resident accounts, and identifying sources of foreign funds.
- Continue to monitor ML risks associated with the real estate sector, including by enhancing data collection on non-residents and beneficial owners.
Key statistics and projections (selected exact figures from Czech Republic: Selected Economic Indicators, 2014–24)
- Real GDP (expenditure): 2014: 2.7; 2015: 5.3; 2016: 2.5; 2017: 4.4; 2018: 2.9; 2019 (staff projection): 2.6
- Domestic demand (annual percent change): 2014: 3.4; 2015: 5.9; 2016: 1.1; 2017: 3.5; 2018: 3.9; 2019: 3.1; 2020: 3.2; 2021: 3.0
- Investment (percent of GDP): 2014: 25.1; 2015: 26.5; 2016: 24.9; 2017: 24.8; 2018: 26.2; 2019: 26.4; 2020: 26.6; 2021: 26.8; 2022: 26.9; 2023: 27.0; 2024: 27.1
- General government revenue (percent of GDP): 2014: 40.3; 2015: 41.1; 2016: 40.2; 2017: 40.5; 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): 2014: 42.4; 2015: 39.5; 2016: 38.9; 2017: 40.8; 2018: (figure not listed)
- Net lending / Overall balance (percent of GDP): 2014: -2.1; 2015: -0.6; 2016: 0.9; 2017: 0.2; 2018: -0.1
- Structural balance (percent of potential GDP): 2014: -1.5; 2015: 0.5
- General government debt (percent of GDP): 2014: 42.2; 2015: 40.0; 2016: 36.8; 2017: 34.7; 2018: 32.7; 2019: 31.7; 2020: 30.6; 2021: 29.8; 2022: 29.1; 2023: 27.4
- Trade balance (goods and services, percent of GDP): 2014: 6.4; 2015: 5.8; 2016: 7.4; 2017: 7.7; 2018: 5.4
- Gross international reserves (billions of euros): 2014: 44.9; 2015: 59.2; 2016: 81.3; 2017: 123.4; 2018: 124.5; 2019: 126.8; 2020: 129.2; 2021: 132.1; 2022: 135.4; 2023: 139.2; 2024: 143.3
- Nominal GDP (USD billions): 2014: 207.8; 2015: 186.8; 2016: 195.1; 2017: 215.9; 2018: 244.1; 2019: 248.4; 2020: 263.7; 2021: 277.7; 2022: 292.4; 2023: 306.8; 2024: 322.8
- Population (millions): 10.5; 10.6
- GDP per capita (USD): 2014: 19,769; 2015: 17,729; 2016: 18,485; 2017: 20,410; 2018: 23,007; 2019: 23,382; 2020: 24,794; 2021: 26,082; 2022: 27,432; 2023: 28,762; 2024: 30,245
- Real GDP per capita and some series (e.g., certain labor market, price, and money & credit entries) contain gaps or ellipses in the published table.
IMF Executive Board Concludes Article IV Consultation with Czech Republic, Press Release No. 19/215 (June 13, 2019).
