## IMF Executive Board Concludes 2024 Article IV Consultation with the Czech Republic _IMF News, January 29, 2025_ ## Source details **Canonical URL:** [IMF Executive Board Concludes 2024 Article IV Consultation with the Czech Republic](https://www.imf.org/en/news/articles/2025/01/29/pr25020-czech-republic-imf-executive-board-concludes-2024-article-iv-consult) ## Other formats - [Markdown version](/en/news/articles/2025/01/29/pr25020-czech-republic-imf-executive-board-concludes-2024-article-iv-consult/index.md) - [Structured JSON version](/en/news/articles/2025/01/29/pr25020-czech-republic-imf-executive-board-concludes-2024-article-iv-consult/index.json) - [Bundle manifest](/en/news/articles/2025/01/29/pr25020-czech-republic-imf-executive-board-concludes-2024-article-iv-consult/bundle-manifest.json) ## Bibliographic details - Published: January 29, 2025 --- ### Overview - On January 24, 2025, the Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV consultation with Czech Republic and endorsed the staff appraisal on a lapse-of-time basis without a meeting. - After a period of stagnation, growth has picked up since late 2023, but the recovery has been slow and uneven. - Consumer spending has strengthened, sustained by a rebound in real wages and early signs of a decline in the household saving rate. Investment remains weak, hampered by uncertainty about global trade, the effects of tight domestic policies and a slow absorption of EU funds. - The labor market: despite subdued economic activity and a decline in job vacancies, structural job shortages persist—particularly among skilled workers—and labor hoarding continues. ### Inflation, Monetary Policy, and Central Bank Balance Sheet - Headline inflation dynamics: - Headline inflation reached the CNB’s 2 percent target and remained close to it over the past summer. - Headline inflation drifted to 2.8 percent by October 2024, mainly reflecting volatile food prices and administered prices base effects. - Core inflation stood at 2.4 percent. - Staff assessment and recommendations: - Staff sees ground for continuing to lower the policy rate. With inflation expectations broadly anchored and output below potential, there is room for additional rate cuts to achieve by mid-2025 a neutral policy rate, which staff estimates at around 3 percent, albeit subject to large uncertainty. - Further easing should be pursued in a gradual, data-dependent manner. - Once uncertainty recedes and inflation stabilizes more closely to target, the CNB could consider placing more weight on forecast-based inflation targeting. - Central bank balance sheet: - Consideration should be given to reducing the size of the central bank’s balance sheet over time. - Profitability has been considerably improved through various ad hoc cost rationalization measures and diversification towards higher yielding assets, but focus should shift from profit maximization to balance sheet reduction. - Aiming to gradually reduce the size of the balance sheet would help limit risks to the CNB’s financial position. - To minimize any impact on the exchange rate, this could be done through a transparent and predictable mechanism of small, regular FX sales above and beyond the existing program. ### Growth Outlook and Risks - Near-term and 2025 outlook: - Growth is expected to have extended its recovery in the second half of 2024, driven by higher real disposable income, but the currently restrictive policy mix and a weak external environment likely dampened near-term outcomes. - Growth is expected to accelerate to 2.4 percent in 2025 from a projected 1 percent in 2024. - Wage moderation supports competitiveness of Czech manufacturers in export markets. - Executive Board assessment: - The Czech economy is slowly recovering after an unprecedented combination of shocks but faces structural headwinds. - Staff assesses the external position to be moderately stronger than the level implied by fundamentals and desirable policy settings in 2024 (Annex IV). - Weak productivity growth and structural labor shortages are set to weigh down medium-term potential growth, which is now estimated at around 2 percent. - Inflation has moderated and, after drifting higher on volatile food prices in the near term, is expected to converge back to target. - Risks: - Downside risks to growth: further geoeconomic fragmentation and a weaker than anticipated recovery among key European trading partners, especially Germany. - Balanced or upside inflation risks: stronger wage growth, stickier than expected services inflation, and protracted increases in commodity prices could exert upward pressure on inflation. ### Fiscal Policy and Public Finances - Near-term stance and medium-term needs: - In 2025, fiscal policy is set to turn neutral. - A broadly neutral fiscal stance this year is appropriate, but additional measures will be needed over the medium term to counter spending pressures. - Staff recommends a further adjustment of ½ percentage points of GDP annually over 2027–28 to reach a structural deficit of less than 1 percent of GDP by 2028. - Productivity-enhancing spending should be safeguarded, and automatic stabilizers should operate freely. - Revenue and spending policy guidance: - Policy actions should be considered both on the revenue and the spending side. - Staff encourages the authorities to reassess the composition of tax revenue. - On the spending side, the reform of the Czech pension system is welcome, but further adjustments may be required in the future. - Containing the expansion of the public sector workforce, including in fragmented local administrations, and improving targeting of social benefit can limit costs. - Efficient absorption of EU funds could boost productivity. ### Financial Stability and Macroprudential Policy - Overall assessment: - Financial stability risks are contained and broadly unchanged since the last Article IV Consultation but warrant vigilance. - Real estate risks should continue to be monitored closely. - Supervisory and risk-monitoring recommendations: - Given the relatively low risk weights on mortgage loans, supervisors should continue to review bank exposures and ensure that credit risks are accurately reflected in banks’ risk weights. - Authorities should continue to regularly evaluate the effect of mark-to-market losses on banks’ securities portfolios and the impact of exchange rate fluctuations on their corporate exposures. - Continued efforts are needed to reduce the transnational aspects of corruption and to safeguard the financial and real-estate sectors from money laundering risks and cross-border illicit financial flows. - Macroprudential stance: - Staff assesses the current macroprudential stance as appropriate. Caution should be exerted in considering additional easing. - A further release of the CCyB would be advisable only in response to clear materialization of financial risks. - Conversely, an increase in the CCyB rate should be considered in case of rapid credit growth and rising asset prices. ### Structural Reforms and Policy Priorities - Swift action is needed to support the ongoing economic transformation. Building on the newly adopted Economic Strategy, the authorities are urged to undertake concrete policy measures. - Recommended structural policy priorities: - Facilitate the allocation of labor towards higher value-added sectors and firms. - Address the gender pay gap to boost labor participation. - Reduce administrative burden and red tape. - Accelerate digitalization. - Promote a more ambitious green transition. ### Key Economic Indicators (2023–2025, as reported) - NATIONAL ACCOUNTS - Real GDP (expenditure): 2023: -0.1; 2024: 1.0; 2025 (Projections): 2.4 - Domestic demand: 2023: -2.6; 2024: 0.3; 2025: 2.3 - Output gap (percent of potential output): 2023: -1.0; 2024: -1.4; 2025: -0.6 - LABOR MARKET - Employment: 2023: 1.5; 2024: 0.7; 2025: 0.1 - Unemployment rate (average, in percent): 2023: 2.6; 2024: 2.8; 2025: 2.5 - PRICES - Consumer prices (average): 2023: 10.7 - Consumer prices (end-of-period): 2023: 6.9; 2024: 3.0; 2025: 2.1 - MACRO-FINANCIAL - Broad money (M3): 2023: 8.1; 2024: 5.3; 2025: 5.0 - Private sector credit: 2023: 6.5; 2024: 4.0; 2025: 3.5 - Ten-year government bond: 2023: 4.4; 2024: 3.6 - Nominal effective exchange rate (index, 2005=100): 2023: 112.6 - Real effective exchange rate (index, CPI-based; 2005=100): 2023: 125.4 - PUBLIC FINANCE (percent of GDP) - General government revenue: 2023: 40.1; 2024: 40.5 - General government expenditure: 2023: 43.9; 2024: 43.3; 2025: 43.0 - Net lending / Overall balance: 2023: -3.8; 2024: -2.9; 2025: -2.5 - Primary balance: 2023: -3.2; 2024: -1.6; 2025: -1.3 - Structural balance (percent of potential GDP): 2023: -2.2 - General government debt: 2023: 42.4; 2024: 43.5; 2025: 44.5 - BALANCE OF PAYMENTS (percent of GDP) - Trade balance (goods and services): 2023: 6.4 - Current account balance: 2023: 1.6 - Gross international reserves (billions of euros): 2023: 134.3; 2024: 143.3; 2025: 152.3 - (in months of imports of goods and services): 2023: 7.9; 2024: 8.2; 2025: 8.0 - (in percent of short-term debt, remaining maturity): 2023: 119.1; 2024: 121.9; 2025: 123.3 *Source: IMF press release — January 29, 2025.* --- ## References - [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/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2025/01/29/pr25020-czech-republic-imf-executive-board-concludes-2024-article-iv-consult_