Czech National Bank (CNB) Revises 2023 Deficit Projection Downward to 3.6% of GDP

In a significant economic update, the Czech National Bank (CNB) has adjusted its outlook for the nation’s public finance deficit, reflecting improved fiscal health. The latest projection, revealed in a table of key macroeconomic indicators, presents a public finance deficit for 2023 at 3.6% of the Gross Domestic Product (GDP). This figure represents an improvement from the previous estimate made in August, which had anticipated a deficit of 3.8% of GDP. The positive trend is expected to persist in the coming years, with a forecasted deficit of 1.6% of GDP for 2024 and 1% of GDP in 2025.

The public finance balance encompasses a wide range of financial activities, including government ministries, state entities, municipalities, contributory organizations, extrabudgetary funds, companies, public universities, research institutes, health insurance entities, and health insurance associations, including the Interstate Reimbursement Centre. It is a comprehensive reflection of the country’s fiscal health.

Furthermore, the CNB’s update also includes a revision to the government’s total debt estimate for this year, which is now projected to be 45% of GDP. While this marks a slight increase from the 44.1% forecasted in August, it is notably lower than last year’s 44.2% of GDP. Looking ahead, the CNB anticipates a debt increase to 45.4% of GDP for the following year, followed by a one percentage point decrease in the subsequent year.

The CNB’s forecast includes insights into nominal wage growth, which is expected to accelerate to 7.5% in 2023, up from 5.3% in the previous year. However, in real terms, wages are projected 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 in the previous year. Real wage growth is expected to rebound next year, with a projected increase of four percent, while in nominal terms, wages are set to rise by 6.7%.

The CNB highlighted the resilience of nominal wage growth despite high annual inflation, noting that “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 robust. The Czech Labor Office’s methodology projects the unemployment rate to increase to 3.6% in 2023, up from 3.4% in the previous year, with further increases to 4.1% in 2024 and 4.2% in 2025, according to the CNB.

The complete monetary policy report, providing a comprehensive analysis of these economic projections, is scheduled for publication on November 10, offering a more detailed and extensive insight into the economic outlook for the Czech Republic.

Article by Prague Forum

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