EC projects stronger economic revival for Czech Republic this year.

By bne IntelliNews November 30, 2010
The European Commission (EC) projected a stronger economic revival in the Czech Republic in 2010, the EC said in its autumn economic forecasts. The economy is to grow by 2.4% y/y this year, to slightly slow down in 2011, but return to a robust growth of 3.1% y/y in 2012. The GDP growth this year will be mainly supported by reviving foreign demand, in particular exports to Germany and Slovakia, which account for more than 40% of the countrys export markets. Another factor supporting the stronger than previously expected economic growth this year will be the domestic demand rebound mainly on the back of inventories accumulation and relatively strong private consumption, which were already evidenced in H1, as well as continued inventory accumulation and expected recovery of private investment, mainly related to investments in photovoltaic power plants in view of the newly introduced amendments limiting state support. The improved outlook is also backed by the provided, mainly to the businesses, significant temporary monetary and fiscal (2% of GDP in 2009) stimulus, which has created stronger footing for return to a growth trend. The expected moderate growth slowdown in 2011 will mainly reflect the adverse effects of the planned fiscal consolidation measures, including lower wages in the public sector and lower welfare benefits, which together with the still high unemployment is to affect household consumption, as well as the expected slowdown of the countrys main export markets. By contrast, rebound of private investments reflecting the current growth in capacity utilisation is to support the economic growth. The robust growth in 2012 will be supported by stronger revival of household consumption (also on the back of decreasing unemployment rate), investments and renewed trade dynamics. Although being strong, the GDP growth will remain below the pre-crisis levels. After reaching a peak this year, the current account deficit is to fall slightly in 2011-12 and is not expected to pose any significant problem for the macroeconomic stability of the country. The major risks to the forecast represent the fact that any unexpected developments concerning the pace of recovery in the countrys main trading partners might result in potentially large changes in export performance in both directions. Moreover, a stronger-than-expected impact of consolidation measures envisaged in 2011 might have negative implications especially for household consumption expenditure. The gradual economic recovery is to drive consumer prices up in 2010, but the price pressures in 2011-12 will be contained thanks to the generally low demand-side pressures, moderate wage growth and the likely further local appreciation. At the same time, some pro-inflationary pressures will appear from the expected increase in electricity prices as a result of the state guaranteed price for solar energy and an increase in natural gas prices. Furthermore, food commodity prices are set to continue increasing in 2011. The Commission has made considerable revisions to its projections for the general government deficit and an improving fiscal stance is expected over the forecast horizon thanks to the relatively significant consolidation measures enacted and planned by the government. The government announced plans to cut the fiscal gap to 5.3% of GDP in 2010, to 4.6% of GDP in 2011, to 4.2% in 2012 and to 3% in 2013, while a balanced budget is to be reached in 2016. The planed budget austerity measures will allow for reducing the pace of the general government debt increase.
 EC Spring Economic Forecasts, November 2010
2009 2010 2010 2011 2011 2012
Indicator Actual data Spring Forecast Autumn Forecast Spring Forecast Autumn Forecast Autumn Forecast
GDP growth, % -4.1 1.6 2.4 2.4 2.3 3.1
Unemployment rate, % 6.7 8.3 7.3 8.0 7.0 6.7
HICP, % y/y 0.6 1.0 1.2 1.3 2.1 2.2
Trade Balance, % of GDP 4.5 5.4 5.0 5.4 5.6 6.4
Current Account Balance, % of GDP -1.2 -0.3 -1.9 -1.5 -1.5 -1.1
General Government Balance, % of GDP -5.8 -5.7 -5.2 -5.7 -4.6 -4.2
General Government Debt, % of GDP 35.3 39.8 40.0 43.5 43.1 45.2
Source: European Commission

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