Ministry of Finance: Convergence Programme of the Czech Republic (April 2024)

30th April 2024

Adverse events in the form of the pandemic followed by the Russian invasion of Ukraine and the associated extreme volatility in the energy markets have placed a heavy burden on society and the economy. In 2020, for the first time in history, the European Commission activated the general escape clause from the rules of the Stability and Growth Pact to allow EU Member States to respond flexibly through fiscal policy to cushion the impact of these shocks.

As risks recede and markets stabilise, fiscal policy stance in the Union is also changing - from purely expansionary in 2020–2022 and neutral in 2023, to restrictive in 2024 and beyond. There is also a change in emphasis from quick and rather across-the-board solutions to largely targeted solutions, focusing only on the most vulnerable in the economy. Economic policy in the Czech Republic has evolved broadly in line with these recommendations in recent years. The same assessment can be made for the period ahead, when fiscal policy should be restrictive this year and in the next few years.

More details by the Czech Ministry of Finance (in English).

Last year, the Czech economy teetered on the edge of recession. Gross domestic product fell by 0.3% in 2023, but is forecast to grow by 1.4% this year and 2.6% next year. Inflation will stay below 3% for most of 2024, before falling towards 2% in 2025. Thanks to continued strong labour demand and falling inflation, real wage growth will resume. Economic growth in the euro area will remain subdued this year but could accelerate to 1.4% next year. Macroeconomic forecast of the Ministry of Finance has more details.

As for euro adoptioan, in 2024, the Czech Republic will probably fulfil the reference values for the criterion on the government financial position, the convergence of interest rates and price stability. Inflation should fluctuate close to the upper boundary of the tolerance band around the CNB’s inflation target next year due to the fading of adverse supply-side factors and the effects of the previous monetary policy tightening. A recovery package and the expected economic recovery will foster a drop in the general government deficit. The Czech Republic is formally non-compliant with the exchange rate fluctuation criterion, as it does not participate in the relevant exchange rate mechanism. the government is not set yet to adopt the euro. More.