OECD raises Czech growth expectations, says risks remain external

By bne IntelliNews May 7, 2014

A day after the European Commission raised expectations for the Czech economic growth, the Organisation for Economic Cooperation and Development (OECD) also improved its forecast but warned of risks mainly from abroad and connected to developments in Germany, the Czech Republic’s main trading partner, and events in Ukraine. In a new forecast published on May 6, the OECD said it expects the Czech economy, which exited a record-long recession in 2013, to gather pace in 2014 and expand by 1.2% driven by exports that is stimulating industrial production and manufacturing orders. Improving consumer confidence and higher real incomes are expected to support private consumption growth that should speed up to 1.7% in 2015, when the economy should grow by 2.4%. In the previous forecast made in March, the OECD saw Czech GDP growth at 1.1% for 2014 and at 2.3% for 2015.

The OECD sees the Czech government’s slightly supportive fiscal policy as appropriate but warned that once recovery takes solid ground measures to fiscal sustainability should be implemented, in particular those aimed at containing ageing-related spending pressure. Regarding the central bank’s monetary stance, the organisation believes that it should return to the floating-rate policy as soon as deflation risks definitively recede.

Risks to the forecast remain mainly from abroad as the Czech Republic is vulnerable to disinflationary or financial market shocks originating from Germany or its other main trading partners. Events in Ukraine also represent a negative risk. 

OECD's forecast for the Czech Republic
  2014 2015
GDP y/y change, % 1,2 2,4
Private consumption, y/y change % 0,9 1,7
Govt consumption, y/y change % 1,1 2,0
Gross fixed capital formation, y/y change % 0,4 3,2
Final domestic demand 0,9 2,1
Exports, y/y change % 5,0 5,4
Imports, y/y change % 4,6 5,3
Inflation, % 0,1 2,0
Unemployment, % 6,9 6,8
Current account balance, % of GDP -0,6 -0,3
General govt balance, % of GDP -2,1 -2,6
General govt gross debt % of GDP 61,2 63,5
Source: OECD's May Economic Outlook    

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