EC improves Czech economic growth outlook, sees budget gap touch above target

By bne IntelliNews May 5, 2014

The European Commission expects the Czech economy, which exited a record-long recession in 2013, to continue recovering in 2014 supported by rising exports and improving domestic demand. According to the EC’s spring forecast, announced on May 5, the Czech GDP should grow by 2% this year, faster than the 1.8% growth projected in EC’s previous forecast made in February. The improvement reflects stronger than previously expected private consumption and investments.

Exports will be the main growth driver in the first half of 2014, while domestic demand is set to take over the lead thereafter. The contribution of trade to the Czech GDP will be underpinned by rising foreign orders, a projected gradual recovery in the country’s main trading partners and the supportive monetary policy of the central bank. Rising real wages and improving labour market prospects will help household consumption contribute positively to the GDP after several years of stagnation and contraction. Improving business confidence, rising demand for credits and growing industrial production suggest a more sustainable rebound in private investment, the EC said adding that the upturn in public investment is expected to be substantially stronger on account of a surge in EU-funded investment projects.

Regarding the budgetary outcome, the EC sees the general government deficit at 1.9% of GDP in 2014, a touch above the finance ministry’s target of 1.8% announced in its April macroeconomic forecast. The gap should widen from 1.4% in 2013 due to the government’s expansionary fiscal policy.

The general government debt is seen falling to 44.4% of economic output in 2014 before edging up to 45.8% in 2015, the EC said revising down its previous forecasts of 47.2% and 48.6%, respectively.

Czech Republic's key macroeconomic indicators Spring forecast Winter forecast
  2014 2015 2014 2015
GDP y/y change % 2,0 2,4 1,8 2,2
Private consumption, y/y change % 0,7 1,9 0,4 2,0
Public consumption, y/y change % 1,5 1,3 1,5 0,8
Gross fixed capital formation, y/y change % 2,3 2,6 1,2 2,2
Exports, y/y change % 5,0 6,2 5,7 6,1
Imports, y/y change % 4,0 6,0 4,6 5,8
Inflation, % 0,8 1,8 1,0 1,8
Unemployment, % 6,7 6,6 6,8 6,6
Current account balance, % of GDP -0,4 -0,2 -1,5 -0,9
General govt balance, % of GDP -1,9 -2,4 -2,8 -3,3
General govt gross debt % of GDP 44,4 45,8 47,2 48,6
Source: European Commission's Spring Forecast 2014        

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