Market analysts expect the Czech economy to contract by 0.8% in 2013, the central bank’s July financial market expectations survey showed. In the June issue of the survey the analysts forecast a 0.7% GDP decline for this year. The downgrade reflects the surprisingly large GDP contraction in the first quarter due to a marked fall in inventories.

The country entered its longest recession on record with the GDP contracting for six straight quarters in Q1 when it shrank by 2.4% on the year and by 1.3% on the quarter.

The analysts expect the economy to return to a 1.7% growth in 2014 but the forecast was slightly worse than the 1.8% expansion expected in June. Next year’s growth will be supported by recovering foreign demand. Yet, external factors, in particular the eurozone’s debt crisis, are still considered to pose the biggest risk to future growth.

In a new forecast published on August 1, the central bank slashed its GDP estimate for this year and now expects the economy to contract by 1.5% (in line with the government’s forecast) in 2013 but to expand by 2.1% in 2014 (much more optimistic than the government’s estimate of 0.8%).

Regarding inflation, the analysts kept their outlook for the second month running in July. The one-year outlook was kept at 1.6% and the three-year outlook at 2.1%. According to the latest data from the statistics office, consumer prices in the country increased by 1.6% y/y in June speeding up their growth from 1.3% in May. The analysts expect the current negative demand-pull inflation to persist this year and some expect it to turn positive in the second half of 2014 but to be below the pre-crisis level. Additionally, the expected rise in household consumption will probably be reflected not only in price pressures but also in a worse current account balance, the analysts said.