The European Commission expects the Czech economy, which exited a record-long recession in 2013, to continue recovering in 2014 supported by improving global outlook. According to the EC’s winter forecast, announced on Feb 25, the Czech GDP should grow by 1.8% this year versus a 1.2% drop estimated for 2013. The forecast was kept unchanged from the EC’s previous forecast made in November.

The main growth driver this year will be rising exports supported by the weakened local currency as a results of the central bank’s forex interventions and a gradual acceleration of economic activity in the country’s EU trading partners. Household demand is starting to recover but a more sustained growth is projected for 2015 when the EC expects the GDP to gain strength to 2.2%. The growth in household consumption will be supported by a dynamic expansion of nominal wages, while employment growth will be restrained by the decrease in the population of working age. Low inflation expected in 2014 is also likely to support real income growth.

Regarding the budgetary outcome, the EC sees the general government deficit at 2.8% of GDP in 2014, a touch above the finance ministry’s target of 2.7% announced in its January macroeconomic forecast. The gap is forecast to widen to 3.3% of GDP in 2015 on increased budget spending on pensions and investments.

The general government debt is seen rising to 47.2% of economic output in 2014 and further to 48.6% in 2015, the EC said revising down its previous forecasts of 50.6% and 52.3%, respectively.