In a new forecast published on February 6, the Czech central bank cut its estimate for last year’s economic development but improved expectations for 2014 and 2015 thanks to recovering foreign demand. The bank expects the economy to contract by 1.3% in 2013, deeper than a 0.9% drop forecast in November. This year, however, the GDP should grow by 2.2% the bank said raising its forecast from an earlier expected growth of 2.1%. Growth is forecast to speed up further to 2.8% in 2015, versus a previous forecast of 2.5%.
Economic recovery in 2014 will also be supported the monetary policy easing via the bank’s currency interventions. The weaker koruna will boost the price competitiveness of domestic production and, via a decrease in real interest rates, support private consumption and investment expenditure. Unlike in previous years, fiscal policy will have a broadly neutral effect on economic growth, the bank said.
The forecast assumes market interest rates to stay at their very low level until the start of 2015 by then the easier monetary conditions will allow the bank to return to the conventional regime of its monetary policy in which rates will again play the main role.
Still subdued domestic activity and low wage growth coupled with a fall in administered prices will push the headline inflation to low positive levels at the start of 2014. Inflation will then pick up pace, returning towards the bank’s target of 2% at the end of this year.
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