Economic Overview
Covid-19 weighed on the fundamentals of the Czech economy that had supported growth: domestic demand, tax, revenues and exports. To date, the Czech Republic is the only European Union country with economic performance below 2019 levels. After growing by 2.3% in 2022, GDP stagnated in 2023 (+0.2%), as high inflation and stringent financial conditions resulted in a reduction of real household income and a rise in precautionary savings, thereby suppressing private consumption. Net exports, buoyed by reduced imports of energy and the reduction of accumulated inventories, made a positive contribution. According to the IMF, growth is set to gradually pick up in 2024 (2.3%) and 2025 (2.9%), fueled by decreasing inflation, which boosts real disposable income. Furthermore, the gradual easing of financing conditions and a high savings rate are poised to provide additional support for consumption. Conversely, the implementation of a fiscal consolidation package and the conclusion of energy-related measures are projected to exert a contractionary influence.
In 2023, the budget deficit remained stable at 3.8% of GDP, driven by expenditures outpacing GDP growth, attributed to the automatic indexation of pensions to inflation and initiatives aimed at alleviating the effects of elevated energy prices: the total net budgetary cost of these energy-related measures was estimated to amount to 1.2% of GDP. The projected scenario indicates a decline in the budget deficit to 2.2% of GDP in 2024 (IMF), due to the expiration of measures aimed at alleviating the impact of elevated energy prices, coupled with the government's implementation of a consolidation package. Public debt is still low compared to the EU average despite its high pace of growth in 2020-2022. The public debt-to-GDP ratio increased from 44.2% in 2022 to 45.4% last year but is expected to resume a downward trend over the forecast horizon (to around 44% by 2025 – IMF). Following a peak in headline inflation at 18% in the first quarter of 2023, the rate has substantially decreased, primarily influenced by a reduced growth rate in energy and food prices. The overall inflation rate was estimated at 10.9% in 2023 by the IMF. Due to salary hikes, inflation, excluding unprocessed food and energy, is anticipated to decrease at a rate less pronounced than headline inflation but is expected to stay at a moderate level.
Czechia has a tight labour market and a low share of temporary contracts, with one of the lowest ratios of unemployment in Europe, at 2.8% in 2023 (from 2.1% one year earlier). Market conditions may get tighter as Ukrainian refugees join the labour market, but the unemployment rate is expected to remain low this year and the next (2.6% and 2.3%, respectively - IMF). The IMF estimated the country’s GDP per capita (PPP) at USD 49,025 in 2023, 14% below the EU average, although nominal wage growth lagged behind inflation last year, reducing real disposable income.
Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
GDP (billions USD) | 290.57 | 332.03 | 325.88 | 337.53 | 351.16 |
GDP (Constant Prices, Annual % Change) | 2.3 | -0.4 | 0.7 | 2.0 | 2.1 |
GDP per Capita (USD) | 26,836 | 30,600 | 29,801 | 30,956 | 32,303 |
General Government Balance (in % of GDP) | -3.4 | -3.1 | -1.8 | -1.7 | -1.5 |
General Government Gross Debt (in % of GDP) | 44.2 | 44.2 | 45.1 | 45.2 | 45.1 |
Inflation Rate (%) | 15.1 | 10.7 | 2.1 | 2.0 | 2.0 |
Unemployment Rate (% of the Labour Force) | 2.2 | 2.6 | 2.6 | 2.5 | 2.4 |
Current Account (billions USD) | -17.78 | 4.05 | 1.83 | 3.36 | 3.92 |
Current Account (in % of GDP) | -6.1 | 1.2 | 0.6 | 1.0 | 1.1 |
Source: IMF – World Economic Outlook Database , October 2021
Country Risk
See the country risk analysis provided by La Coface.