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Economic growth is projected to pick up in 2017. The increase in the minimum wage in January and ongoing strong labour demand will benefit workers and boost consumption. Private and public investment are recovering. Labour shortages will constrain growth in 2018 and add some inflationary pressure, keeping inflation above the 2% target through 2018.
In April, the central bank successfully ended its unconventional policy of capping the koruna exchange rate against the euro, allowing it to float freely. Monetary policy is assumed to tighten gradually from late 2017 to counter rising inflation. Slightly expansionary fiscal policy in 2017 will give the central bank scope to raise interest rates. Structural policies that reduce labour shortages and raise productivity – such as expanding childcare to allow mothers to return to work – would facilitate faster growth and sustain higher wages.
The economy is highly integrated into global value chains due to foreign investment. Foreign firms were previously attracted by low wages, but the challenge now is to increase value added to raise the returns from globalisation. Incentives to increase R&D by Czech firms should be increased. Lifelong learning would help the workforce adapt to these changes.
Economic Survey of Czech Republic (survey page)