In its latest economic projection, the Czech National Bank (CNB) has revised its estimate for this year’s public finance deficit to 3.6% of the gross domestic product (GDP), an improvement from the previous forecast in August, which had anticipated a deficit of 3.8% of GDP. The outlook for public finances is set to continue improving in the coming years, with a projected deficit of 1.6% of GDP for the next year and 1% of GDP in 2025, as indicated in a table of key macroeconomic indicators released on Friday as part of the current monetary policy report. The complete report is scheduled for publication on November 10.
The public finance balance is determined by the variance between revenues and expenditures of government ministries, state entities, municipalities, contributory organizations, extrabudgetary funds, companies, public universities, research institutes, health insurance companies, and associations related to health insurance, including the Interstate Reimbursement Centre.
Additionally, the CNB has downgraded its estimate for the total government debt for this year to 45% of GDP, a slight increase from the 44.1% anticipated in August but lower than last year’s 44.2% of GDP. For the following year, the CNB predicts the debt will rise to 45.4% of GDP before decreasing by one percentage point in the subsequent year.
The CNB’s forecast also indicates an acceleration in nominal wage growth to 7.5% this year, up from 5.3% in the previous year. However, in real terms, wages are expected to decline by 2.8%, as nominal growth fails to outpace inflation. This marks the second consecutive year of declining real wages, following an 8.4% drop last year. Real wage growth is expected to return next year, with a projected increase of four percent, while in nominal terms, wages are set to rise by 6.7%.
The CNB emphasized, “Nominal wage growth remains strong this year despite high annual inflation. The forecast anticipates a gradual moderation in wage growth in the years to come, but this is not expected to undermine the achievement of the inflation target. Elevated corporate profit margins will be adjusted concurrently, gradually restoring real wage purchasing power, which will bolster household consumption.”
While there is a minor uptick anticipated in unemployment, the labor market is expected to remain tight. According to the Czech Labor Office’s methodology, the unemployment rate is projected to rise to 3.6% this year, up from 3.4% in the previous year, with further increases to 4.1% next year and 4.2% in 2025, according to the CNB.