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According to the International Monetary Fund, the Czech Republic’s economy ended the year with growth but will expect a slight recession in the coming year

The Czech Republic’s economy saw 2,5% growth in 2022 compared to 2021, however, a slight recession of 0,5% in gross domestic product is expected in 2023. According to the IMF, “household purchasing power weakens, while businesses hold back investment” in a context where domestic demand is expected to decline by 4,4% and exports grow by 4,6%. In the short term, inflationary pressures are expected to be driven by external and domestic factors. With an even longer-term perspective, by 2024 the IMF expects Czech GDP to increase by 2,5% due to improved domestic consumption, investment and foreign demand.

War uncertainty, a downward trend in economic activity and an upward trend for inflation lead to an economy vulnerable to increases in energy and commodity prices. A further short-term increase above the current level of the official rate is recommended, and there is a need to focus on containing inflation.

The restrictive fiscal stance is appropriate in an environment of high inflation and low unemployment, but the measures that have been taken on support should be rolled back to increase policy space. Although support for households and businesses during the cost of living crisis is justified, the measures should be targeted, temporary and preserve price signals. In addition, if raising taxes in the current context is not feasible, when the cost-of-living crisis subsides, the reintroduction of taxes could be done by increasing PIT progressivity and intensifying transfers for the weak.

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