D&B says Czech growth outlook is improving but long-term obstacles persist

By bne IntelliNews April 29, 2014

The Czech economic growth outlook is improving driven by rising exports on the back of a recovery in the euro zone, the country’s main trade partner, as well as thanks to a gradual revival of domestic demand, commercial information and analysis company Dun & Bradstreet (D&B) said in its April 2014 RiskLine report.

Yet, in the long term the economy faces a number of obstacles to growth such as heavy regulatory burden, inefficient bureaucracy, high progressive tax rates, inefficient labour market and an operating environment that is impeded by substantial state ownership, large cartels and corruption in areas such as public procurement, D&B has warned. The new centre-left government, in office since January 29, however, has pledged to reduce the administrative burden on companies, fight corruption and introduce reforms to the labour market. It is yet to be seen how successful these plans would be having in mind that the coalition partners do not share the same commitment to reforms, D&B said adding that without reforms, there is a substantial risk that the domestic service economy will continue to lag behind the export-oriented manufacturing sector, reducing the country's growth potential for much of this decade.

D&B rates the Czech economy as slightly risky and the country's overall risk profile is improving as a result of favourable political and economical developments. The rating (DB3c) implies enough uncertainty over expected returns to warrant close monitoring of the country risk, D&B said.

The DB risk indicator provides a comparative, cross-border assessment of the risk of doing business in a country and encapsulates the risk that country-wide factors pose to the predictability of export payments and investment returns over a two year time horizon. The indicator is a composite index of four over-arching categories: political risk, commercial risk, external risk and macroeconomic risk. It is divided into seven bands, ranging from DB1 to DB7, where DB1 represents the lowest risk.

D&B sees the Czech GDP growing by 1.7% in 2014 and further gaining strength to 2.4% in 2015. According to the latest data by the Czech statistics office, the GDP shrank by 0.9% in 2013.

  2014 2015
Real GDP growth, % 1.7 2.4
Avg annual inflation, % 2.0 2.2
Govt balance, % of GDP -2.5 -2.3
Unemployment, % 6.9 7.6
Current account balance, % of GDP -0.8 -0.4
Source: D&B Country Risk Report    

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