Extreme flooding in Czechia is likely to have a knock-on effect on the country’s economy, with ING calculating that the overall flood damage will have a negative effect of 0.5% on Czech GDP.
In addition, insurance costs are likely to have a negative impact of 0.2% on GDP – costs that could have a bearing on this year’s budget and medium-term inflation.
Previous flooding
ING examined the impact of floods that hit the country in 2002 and 2023, to quantify and compare the expected impact on the Czech economy.
“The recent floods seem less damaging than the devastating event of 2002 in terms of economic cost, yet more severe than the 2013 floods,” commented David Havrlant, ING chief economist, Czech Republic.
Havrlant noted that insured losses from this year’s floods are projected to reach approximately CZK 17 billion, based on initial estimates from the Association of Insurance Companies. Around half of the total damages are attributed to households, with the remaining half affecting businesses.
The cost for the general government is estimated to reach 0.3% of nominal GDP or CZK 24 billion, according to ING.
Impact on government budget
“The final bill for the flooding could impact the planned government budget for this year,” Havrlant commented. “Some funding for critical events is already budgeted, while some resources can probably be obtained from the EU funds. The Ministry of Finance has a lot of cash in its accounts and reserves, yet some increase in the supply of Czech government bonds cannot be excluded in the coming months.
“We may see a positive effect on consumer prices in the medium term due to higher demand for durable goods as households replace destroyed appliances and cars. The elevated need for construction work will likely provide a boost to prices in this segment.”
