The Czech economy should grow by 2.4% in 2014 recovering from a 0.9% drop in 2013, Oxford Economics said in a new forecast lowering its forecast from a 2.6% growth expected in March mainly due to weaker-than-expected Q1 data. According to the Czech statistics office flash estimate published on May 15, the GDP remained flat on the quarter in Q1 mainly due to the destocking of tobacco products. However, as this effect unwinds, Oxford Economics expects quarterly growth to accelerate in 2014 on the back of supportive fiscal policy, stronger foreign demand and the central bank’s currency interventions.

Regarding expectations for 2015, Oxford Economics kept unchanged its estimate of 2.8% saying that growth will continue to be underpinned by strengthening foreign demand, falling unemployment, improving credit conditions and a recovering construction sector.

A continued growth in the key manufacturing industry, evident from the rising PMI index, and improved consumer confidence should also support the country’s economic growth.

Oxford Economics evaluates two main emerging risks for the Czech economy. The first one is the uncertainty when the central bank will exit its exchange rate commitment meaning as a too sudden move might prompt a significant appreciation of the koruna against euro, hurting  GDP growth, while a too modest move might lead to higher inflation.

The second emerging risk may arise from a further deterioration of EU-Russia relations over the Ukraine’s crisis that may limit Czech exports to Russia. Also in case of disruptions of the Russian supply of gas and oil, the Czech Republic could experience weak growth this year and recession in 2015, accompanied by relatively high inflation.

In its risk assessment Oxford Economics said the Czech Republic remains vulnerable to a renewed downturn in the eurozone, which buys 63% of Czech exports. The country’s risk index is estimated at 19 on a scale from 0 (no risk) to 100 (highest risk).