The Czech finance ministry improved its GDP expectations for 2014 reflecting higher government expenditure and a stronger contribution of the foreign trade, the ministry said in a new forecast published on January 31. The ministry expects the GDP to shrink by 1.4% in 2013 and return to a 1.4% growth in 2014 versus October’s estimates for a drop of 1% and a 1.3% hike.

The Czech economy exited a record-long recession that lasted for 18 months in mid-2013 posting two straight quarterly increases in Q2 and Q3. The ministry expects real GDP growth in Q4 to speed up to 0.5% q/q from 0.2% in Q3. Overall, economic output in 2013 was negative mainly due to a decline in gross capital formation, the ministry said. In 2014, however, all components except for fixed investment will have a positive contribution helping the GDP resume growth.

Inflation should stay low in 2014 despite the weaker koruna as a result of the central bank’s forex interventions, the ministry said. Unlike in previous years, administrative prices, in particular electricity prices, are expected to have an anti-inflationary impact throughout 2014.

Regarding expectations for the development of the labour market, the ministry sees employment stagnating in both 2014 and 2015 reflecting employers’ efforts to increase productivity by rationalising the number of employees, while the unemployment rate is seen hovering around 7%. The wage growth should accelerate to 2.2% in 2014 and further to 4.3% in 2015.

The ministry expects this year’s budget deficit to slightly widen to 2.7% of GDP from 2.5% estimated for 2013. In its October forecast, the ministry projected the budget gap at 2.9%. The change reflects improved expectations for VAT revenues and lower payments of social benefits.