The Czech economy should recover to a growth of 2% in 2014 after an estimated contraction of 1.3% in 2013, Erste Group said in a new CEE outlook published on Jan 2. In July 2013, Erste forecast a 0.3% GDP drop for the Czech Republic in 2013 and a growth of 0.9% for 2014.

The end of fiscal consolidation, which was to be blamed for the record-long recession the country emerged from in Q2, will help the economy start to grow again this year, Erste said. The new Czech government expected to be appointed later this month will be led by centre-left Social Democrats (CSSD) that narrowly won the October general elections and will include also anti-corruption and pro-business movement ANO and the Christian Democrats. According to Erste, the inclusion of ANO in the next government will be the other potentially important event for the country this year. ANO, led by billionaire Andrej Babis, was the reason CSSD backed off on its plans to raise taxes for big companies and high earners and has for now postponed the introduction of a special tax on banks, telecommunication companies and utilities.

Overall for the CEE region, Erste expects GDP growth to accelerate to 2.2% this year from 0.9% in 2013 and further strengthen to 2.8%. Erste’s report includes seven CEE countries – Croatia, the Czech Republic, Hungary, Poland, Romania, Serbia and Slovakia. The region’s economic growth will be twice as high as the growth expected for the euro zone, Erse said noting that the growth composition will be more balanced and thus more sustainable with 2014 being the first year after the onset of the crisis with investments rising in every country. Erste expects fiscal deficits to continue shrinking in CEE-7 and all countries, except for Croatia and Serbia, being able to meet the EU’s fiscal deficit limit of 3% of economic output.