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Stable economic growth is projected for 2017 and 2018. Solid labour demand will push unemployment towards its lowest rate in the last two decades, accelerating wage and supporting consumption. Investment was cut sharply in 2016 due to the transition in EU funding programmes, but is projected to rebound in 2017. Rising cost pressures will push consumer price inflation to the 2% target during 2017.
The central bank has committed to preventing exchange rate appreciation against the euro until at least the second quarter of 2017, to insure against deflationary forces. The policy rate could then cautiously be lifted, as the deflationary threat recedes, with fiscal policy supporting demand if needed. Structural policies addressing skill shortages and raising productivity would help sustain the expansion and increase inclusiveness. These include expanding childcare, increasing incentives for business R&D and reducing entry and exit barriers for firms.
Public debt is low and the budget is broadly in balance, providing room for fiscal support to enhance growth. Boosting investment should be a priority, and can take advantage of EU funds. Tax and spending policies could better support sustainable growth and equality, notably by lowering the tax wedge on labour income and increasing spending on childcare.
Economic Survey of Czech Republic (survey page)