In it latest economic forecast, the Czech Banking Association (CBA) downgraded further its gross domestic product (GDP) growth projection for 2013 to a 0.8% contraction. In April, the CBA cut its GDP growth outlook to a 0.2% contraction from stagnation projected in January. The association reduced also its growth projection for next year to 1.7% from 1.8% expected in April and 1.9% seen in January.
The CBA said that the downward revision of its 2013 growth outlook was caused mainly by the worse-than-expected 2.4% y/y drop in Q1 GDP. By the end of the year, however, it expects the Czech economy to report q/q growth thanks to a slower decline in private consumption and a recovery of exports. It noted also that the unstable political situation brings some uncertainty for the further economic development.
The association’s forecast, based on a survey of seven of the country’s largest banks, is more pessimistic about this year’s economic development than the central bank, which expects a 0.5% GDP contraction, while the finance ministry expects stagnation.
The Czech Republic has entered its longest recession on record with the GDP contracting for six straight quarters till March 2013 as households and companies are spending less amid the government’s austerity measures and the economic slump in the eurozone. The Q1 GDP contraction was mainly due to a drop in the volatile inventories category. Yet, there was good news since household consumption, which used to be the main drag on growth in past quarters, rose by 1.6% on a quarterly basis, the fastest pace in three years. A revival in economic activity can be expected in the second half of the year as exports recover from the negative impact of the Eurozone crisis and improving business and consumer confidence support domestic demand. According to the CBA, a lower-than-expected inflation could improve households' real incomes, but a significant revival of consumption cannot be expected due to the rising unemployment.
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