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ČNB lowers economic outlook, GDP to fall by 3.8% this year

( 03 / August / 2009 )

The Czech National Bank (CNB) in its new forecast expects the domestic economy to contract by 3.8 percent this year and to grow by 0.7 percent in 2010 and by 2.2 percent in 2011, CNB governor Zdenek Tuma informed at a press conference yesterday.

CNB thus lowered its estimate. Czech economy grew by 2.8 percent last year, according to Czech Statistical Office (CSU) revised data.

In its previous forecast from May, the CNB expected the Czech economy to shrink by 2.4 percent this year and to grow by 1.4 percent next year.

The Finance Ministry in its new forecast also expects a bigger GDP fall than a few months ago. It believes GDP will fall by 4.3 percent this year and grow by just 0.3 percent in 2010, by 2.4 percent in 2011 and by 3.2 percent in 2012.

According to EC estimates, Czech economy will contract by 2.7 percent this year. The International Monetary Fund (IMF) expects Czech economy to shrink by 3.5 percent this year.

"This economic story about the Czech Republic has not changed in a fundamental way against the previous forecast. We base our data on expectations that the economic fall reached its bottom in the second quarter and a moderate revival will follow. Nevertheless, we will see a fall on year-on-year figures," Tuma said.

There is also no doubt that the growth in household consumption will be slowing down and household consumption may even fall in 2010. The reason is growing unemployment, he noted.

"The growth in household consumption will get close to zero in 2009 and will be moderately negative at the beginning of 2010," Tuma said.

The central bank expects lower inflation in the coming months.

"Overall inflation will fall further in the third quarter of this year. In the rest of the year and at the beginning of next year, it will be moving at low levels," Tuma said.

"Then it will start growing again next year and will get to the 2 percent inflation target at end-2010," he added.

In the third quarter of 2010, overall inflation should move at 1.3 percent, and in the last quarter of 2010 at 1.9 percent.

The main risks which could endanger the new forecast are slightly anti-inflationary. Factors which could act against the price growth are the currently stronger rate of the crown, while price growth can be backed by higher oil prices, he noted.

The Czech crown should gradually start firming slightly and while its average rate this year should be Kc26.60/EUR, the unit should trade at Kc25.70/EUR next year and in 2011, the crown should trade at Kc25.30/EUR.

The crown is now traded around Kc26.0/EUR.

The forecast counts on a decrease in market interest rates this year and their gradual growth from the second half of 2010.

CTK

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