The Czech economy should contract by 1% in 2013, consultancy Ernst & Young said in its latest forecast cutting its estimate from a previously expected GDP drop of 0.5%. The downgrade reflects a deeper-than-expected GDP contraction in the first quarter of 2013 and although E&Y expects economic activity to strengthen in the second half of 2013 it won’t be enough to compensate for the weak Q1.

In 2014, E&Y expects the Czech economy to return to a 2.2% growth driven mainly by foreign demand. Thus the consultancy improved its expectations from a GDP rise of 1.9% forecast in March.

E&Y analyst Jan Fanta said that the loosening of austerity measures in the country will depend on further political developments. The Czech economy should expand by 2.7% in 2015 and by 3% in 2016 and keep that pace of expansion in the years till the end of the decade, Fanta added.

According to preliminary figures released by the Czech statistics office earlier in August, the economy exited its longest recession on record in the second quarter of 2013 helped by recovering foreign demand while investments and household consumption continued to decline The gross domestic product grew by 0.7% on the quarter in Q2, following a 1.3% contraction in the first three months of the year. The economy shrank for six straight quarters till Q1 as the government’s fiscal consolidation measures and the eurozone’s debt crisis eroded spending by businesses and households and curbed demand for exports. On an annual basis, the GDP contracted by 1.2% in April to June 2013, after a 2.4% slump in the first quarter. 

In early August, the IMF cut its GDP estimate for the Czech Republic and now expects the economy to contract by 0.4% y/y in 2013 versus an earlier forecast for a 0.3% growth. The World Bank is also expecting a 0.4% drop for this year, while the OECD sees a deeper slump of 1%. The Czech central bank and the government are forecasting a GDP drop of 1.5% in 2013.