OECD raises Czech growth expectations, says risks are balanced

By bne IntelliNews November 25, 2014

After exiting a record-long recession in 2013, the Czech economy is gaining speed with recovery driven by strengthening domestic demand that offsets weakness in export markets, the Organisation for Economic Cooperatixpon and Development (OECD) said in its latest Economic Outlook published on November 25. OECD now expects the Czech GDP to rise by 2.4% in 2014, improving its estimate from 1.2% forecast in May. Next year’s growth outlook, on the other hand, was slightly cut to 2.3% from 2.4%.

Supportive financial conditions, government spending, improving confidence and rising incomes will support growth in the near term, the OECD said adding that a recovery in private investment should also be well under way by 2016 helping the economy expand by 2.7%.

As growth strengthens, inflationary pressures will rise pushing the central bank to end its weak-koruna regime allowing the exchange rate for float freely and return using policy rates as its main instrument. Inflation is seen getting closer to the central bank’s target of 2% in 2016.

Risks to the Czech economy are broadly balanced. External risks include further escalation of the Russia-Ukraine conflict that may dent private sector confidence, while an unexpected weakness in the euro area might hit exports. Another downside risks is a repeat of low absorption of EU funds, while on the upside a further rise in confidence might lead to a faster-than-expected recovery in private demand.

OECD's forecast for the Czech Republic      
  Current forecast Previous forecast
  2014 2015 2016 2014 2015
GDP y/y change, % 2,4 2,3 2,7 1,2 2,4
Private consumption, y/y change % 1,5 1,9 2,3 0,9 1,7
Govt consumption, y/y change % 1,6 2,1 1,7 1,1 2,0
Gross fixed capital formation, y/y change % 4,5 4 3,4 0,4 3,2
Final domestic demand 2,3 2,5 2,5 0,9 2,1
Exports, y/y change % 8,3 4,8 6,3 5,0 5,4
Imports, y/y change % 8,9 5,2 6,3 4,6 5,3
Inflation, % 0,3 1,1 1,8 0,1 2,0
Unemployment, % 6,3 6,2 6 6,9 6,8
Current account balance, % of GDP -0,1 0,1 0,2 -0,6 -0,3
General govt balance, % of GDP -1,4 -2,1 -1,5 -2,1 -2,6
General govt gross debt % of GDP 51,9 52,4 52,2 58,8 60,9
Source: OECD's November 2014 Economic Outlook

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