Item


The Czech economy emerged from recession in the second quarter, growing by 0.3 percent (comparing to the previous three months). On a 12-month comparison, the Czech economy still plummeted by a record 4.9 percent.

 

Analysts confirmed that the data had been expected, saying that the Czech economy had hit "rock bottom" in the first quarter and could now begin to bounce back. On the other hand, the Czech central bank forecast a sharper full-year slump and slower recovery than expected previously. The bank now expects the economy to contract by 3.8 percent, compared to the earlier 2.4 percent predicted in May.

 

 

Analysis and forecast: increasing risk


The 0.3 percent growing was communicated as a success and as the first certain sign of the recovery. Clear, a strong influence has been the auto industry picking up, with increased sales in export markets, but it would be blindfolded to assume an upcoming trend. The 4.9 percent record y-o-y shrink data cautions against optimistic scenarios, and the enlarging deficit (see next item) also delimits the economy’s growing potential.

 

 

*Finance Ministry forecast, source: Eurostat, Statistic Office of the Czech Republic

 


 

Item


Finance Minister Eduard Janota has warned that, without government intervention, the budget deficit in 2010 could reach some 256 billion crowns, which constitutes 7 percent of GDP. The finance minister said that the government must make some legislative changes, increasing the amount of money coming into state coffers and making extensive budget cuts across the board if this situation was to be avoided. He added that the Finance Ministry would be proposing such legislation to Parliament in due course.

 

 

Analysis and forecast: increasing risk

 

Political Capital indicated in Regional Risk Watch 7/2009 that revision in deficit forecast was expected. The OECD 4.9% prognosis is about to fall short, as the government has small room for manoeuvre  ahead of early elections in the autumn; even Mr Janota doubted that necessary austerity measures could be carried out: it is very likely that the correction of the budget will be the new government’s duty.