The Czech economy should recover in 2014 posting a growth of 2.5%, following a 0.9% drop in 2013, consultancy Ernst & Young said in a new forecast. In its previous forecast announced in February, E&Y projected a 2.2% growth.

Rising foreign demand, adequate fiscal stimulus and the central bank’s forex interventions aimed at keeping the koruna week will be the major growth drivers of the Czech economy this year, according to E&Y. The recovering economies of the country’s main trade partners will boost demand for Czech exports in 2014, while the weaker koruna will make Czech projects more competitive abroad. Rising inflation expectations due to the higher import prices may lead to a drop in real interest rates encouraging companies and households to boost their investment and spending.

E&Y expects the average annual growth of Czech economy in 2015-2018 to be just under 3%, significantly below the level before the financial crisis. The main reason is the slower growth in productivity. The manufacturing sector will struggle with weaker growth in labour productivity due to lower inflow of foreign direct investments than before the global financial crisis and also due to the ageing of the Czech population, EY said. 

E&Y’s GDP growth estimates are more upbeat than those of the Czech central bank and the finance ministry. The central bank sees the GDP rising by 2.2% in 2014, while finance ministry is more pessimistic forecasting a growth of 1.4%.