The Czech economy should recover in 2014 posting a growth of 2.2%, consultancy Ernst & Young said in a new forecast improving its previous estimate of 1.9% mainly due to the central bank’s foreign exchange interventions aimed at keeping the koruna weak.
E&Y believes that rising exports will also stimulate domestic demand as firms expand capacity and increase their demand for labor. This will help the economy to expand by around 3% from 2015 to 2017, according to E&Y’s latest Rapid-Growth Markets Forecast published in February.
The weaker Czech currency will also prevent inflation from falling too far. The average inflation is projected at 1.7% in 2014 and at 1.9% in the next three years. This will lower real interest rates, encouraging companies and households to boost their investment and spending. According to E&Y, the Czech central bank will keep the koruna weak at least until early 2015.
The recovery in the euro zone, which buys some 63% of Czech exports, will support growth in the Czech Republic. According to an analysis of E&Y the country will benefit the most in CEE from the euro zone recovery thanks to its strong banking sector with the share of non-performing loans the lowest, along with Poland, and the loan-to-deposit ratio below 100% suggesting that the Czech Republic has a significant potential for expanding credit without requiring support from parent banks. Yet, E&Y cautioned that growth might be held back by possible tensions within the newly formed governing coalition.
|E&Y estimates for the Czech Republic||2013||2014||2015||2016||2017|
|Real GDP growth (%)||-1,4||2,2||2,9||3||2,9|
|CPI inflation (%)||1,4||1,7||1,9||1,9||1,9|
|Current account balance (% of GDP)||-1,8||-1,8||-1,9||-2||-1,8|
|External debt (% of GDP)||51,/||53,6||52,2||51,7||50,9|
|Govt balance (% of GDP)||-2,9||2,9||-2,8||-2,6||-2,3|
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