The Czech finance ministry reiterated its target of narrowing the budget gap to 2.8% of economic output in 2013 from 4.4% in 2012 and said it expects the deficit to stay below the EU’s 3% threshold in the long term helping the country exit the EU’s excessive deficit procedure next year, the ministry said in its latest Fiscal Outlook published on May 31.

In 2014 the budget deficit is seen widening to 2.9% of GDP before again shrinking to 2.8% in each of the next two years. “With this trajectory of deficit and with respect to the expected closing of the negative output gap, the current restrictive fiscal policy should be transformed into a more expansive one, especially towards the end of the Fiscal Outlook horizon”, the ministry said.

After contracting for six consecutive quarters, the Czech economy should start recovering from the second quarter of this year. Yet, at the best case scenario it should stagnate in full-2013 driven by net exports and to a lesser extent by gross capital formation that are to offset an expected decline in household consumption. The positive contribution of foreign trade and gross domestic expenditure should help the Czech economy expand by 1.2% in 2014 and further by 2.1% in 2015 and by 2.6% in 2016, the ministry said.

The general government debt is forecast to reach 48.5% of GDP in 2013 from 45.8% in 2012. It is expected to further increase to 51.9% in 2016 but will stay below the EU’s cap of 60%.