Czech economy forecast to reach pre-pandemic levels in 2022

Economic growth in the Czech Republic is predicted to reach pre-pandemic levels in 2022, according to a new annual report released by the Czech Ministry of Finance and the analysis of experts contacted by CTK. The Czech economy is expected to grow by 3.9% next year, up from 2.5% in 2021.

Inflation rates are also expected to rise steeply next year, at 5.5%. Unemployment levels are expected to slightly decline, from an average of 3% in 2021 down to 2.8% next year.

The report by the Ministry of Finance compiles predictions made 14 professional institutions within the Czech Republic. Inflation is expected to be one of the biggest economic hurdles in 2022.

"Inflation will accelerate significantly in 2022 and will be one of the main macroeconomic issues," Jakub Seidler, a chief economist at the Czech Banking Association, told CTK.

"If, for example, the remission or reduction of VAT on energy is not extended, a significant acceleration in year-on-year price growth can be expected at the beginning of the year and single-digit inflation will eventually be a 'positive result'."

According to Seidler, the inflation rate in the Czech Republic could be the highest since 1998, when it hit double digits. More conservative predictions still have Czech inflation at the highest since 2008, when it hit 6.3%.

One of the biggest factors in inflation will be costs of utilities such as gas and electricity, which have already begun to rise at the end of 2021 due to problems in global supply chains. Increased prices in these areas will ultimately trickle down to other sectors.

The Czech crown is forecast to strengthen next year, hitting an average of 24.90 crowns against the euro compared to an average of 25.60 crowns to the euro this year. The strengthened will have little effect on inflation, however.

"The main problems of the business sector remain high prices of raw materials and energy, dysfunctional and expensive international logistics and long-term missing employees," ČSOB analyst Petr Dufek told CTK.

"Only in 2022 will the Czech Republic return to the economic level reached before the pandemic, but with the highest inflation in thirteen years."

To help combat the effects of inflation, Czech wage growth is also expected to remain above 5% in 2022 and beyond. Czech wages have continued to see strong growth thanks in part to competition arising from one of the lowest unemployment rates in Europe.