Czech Economy Will Contract by 6.2 Percent in 2020

Czech’s economy is set to suffer a strong hit from the COVID-19 outbreak in 2020, as external demand drops and lockdown measures disrupt economic activity.

Real GDP is expected to gradually recover in 2021, although it is unlikely to rebound to 2019 levels. Inflation is expected to decrease amid falling oil prices and demand. In parallel, public finances are forecast to deteriorate significantly, as the government’s measures provide support against the economic impact of the pandemic.

In 2020, the COVID-19 pandemic is expected to lead to a sharp decline in GDP growth of -6,2%.

The Czech Republic implemented lockdown measures early and will likely lift them progressively starting in early May, considering the current evolution of the pandemic. Thus, the output is estimated to shrink by over 9% in the second quarter of 2020.

The economy should then gradually recover from the third quarter onwards, but the impact on sectors such as transport, hospitality, and tourism may last longer. In 2021, GDP is expected to grow by 5%, and recover the loss only partially. The upturn is forecast to be mainly driven by an increase in private consumption and investment.

Unemployment is expected to be impacted as well, reaching around 5%, but its increase should be cushioned by the government’s measures, a previously tight labour market, and a low share of temporary contracts.

Trade is set to be impacted strongly due to the structure of Czechia’s exports. The highly cyclical nature of some sectors (e.g. the automotive sector) will likely cause a drop in the trade balance of goods in 2020, before gradually recovering in 2021.

The government has pledged more than 1 trillion crowns ($40.24 billion) mostly in loan guarantees and direct aid for affected workers and firms. It is planning a record budget deficit of 300 billion crowns in 2020, more than seven times its original plan.

The European Commission called it a “recession of historic proportions” today in its spring forecast, which also warned EU unemployment could climb to 9 percent this year.

Things could get still worse depending on how the pandemic evolves, the Brussels executive said. The financial crisis contracted the eurozone economy by 4.5 percent in 2009 and left around 10 percent of workers without a job.