In 2020, GDP per capita decreased in almost all countries due to the effects of the coronavirus pandemic. According to the Czech Ministry of Finance’s Macroeconomic Forecast, the Czech economy shrank by 5.6%, the largest decline in the country’s history.Photo Credit: Freepik / Illustrative Photo.
Czech Rep., Apr 20 (BD) – According to the Czech Ministry of Finance’s Macroeconomic Forecast, GDP per capita decreased in almost all European countries in 2020 due to the effects of the pandemic, with the exception of Lithuania. The largest drop in GDP was seen in southern European countries whose economies have a greater focus on tourism, especially Spain, France, Portugal, and Italy.
In the fourth quarter of 2020, the Czech economy demonstrated considerable resilience to the unfavorable epidemic situation. However, across the whole year, GDP dropped by 5.6%, the largest decline in the history of the Czech Republic.
The year-on-year Q4 growth of 3.3% in intermediate consumption was mostly driven by foreign trade, especially in the automotive industry. The trade surplus was also supported by very weak investment by domestic companies (leading to lower import of capital goods), a renewed decline in household consumption, and the low price of oil.
The year-on-year decline in household consumption deepened significantly, due both to the closure of most shops and service outlets and the persistently high level of savings. Government expenditures, not only in health care but also in some anti-crisis programs, were the only growing component of domestic use, with an increase of 6.8%.
Investments in fixed capital fell by 12.7%, with a decline in all major categories, especially machinery and equipment.
In Q4 of 2020, year-on-year consumer price inflation slowed noticeably, returning to below the 3% margin of tolerance set by the Czech National Bank. The fall in consumer demand has an anti-inflationary effect, but friction on the supply side of the economy has the opposite effect. Year-on-year inflation should stay within the upper half of the margin of tolerance. For 2021, the inflation rate is expected to be 2.5%, with higher oil and food prices. In 2022, in the absence of significant pro-inflationary factors, the inflation rate could decrease to 2.3%.
Developments in the labor market are largely influenced by fiscal stimulus measures, and the unemployment rate is therefore relatively low. According to the Labor Force Survey, it should increase to 3.6% in 2021 due to the delayed effects of the economic downturn, and could rise further to 3.7% in 2022, due to the expected conclusion of government measures to maintain high employment by the end of this year.