New EC outlook confirms return of trust in Czech economy -analyst

published:

updated:
05.05.2014 14:30

Prague/Brussels - The European Commission's latest outlook on the Czech economic development, predicting a 2 percent GDP growth for 2014, confirms that supranational institutions have restored their confidence in the Czech economy, UniCredit Bank analyst Pavel Sobisek said today.

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Strojírny Wikov MGI, výroba - ilustrační foto ČTK Taneček David

"Confidence is apparent not only from the pace of GDP growth predicted for this and next year, which nobody can mistake for stagnation any more," said Sobisek who expects the economy to increase by 2.5 percent in 2014 and by 3 percent in 2015.

In 2015, Czech gross domestic product (GDP) is to increase by 2.4 percent, the EC said in its spring macroeconomic forecast, released today.

The Czech public sector deficit is projected at 1.9 percent of GDP for this year and 2.4 percent of GDP for 2015 by the EC.

Latest data point to a solid and broad-based recovery in the Czech Republic this and next year, the EC said in the forecast.

The EC's spring forecast makes significant revisions to the estimates from the winter forecast, made public in February, in which the EC predicted a public finance deficit of 2.8 percent for this year and of 3.3 percent for next year.

According to the winter outlook, GDP was to grow by only 1.8 percent in 2014 and by 2.2 percent in 2015.

The EC's data from February said Czech GDP had dropped by 1.2 percent in 2013, but the spring forecast revises the GDP contraction down to 0.9 percent.

The data corresponds to the figures released by the Czech Finance Ministry. But the ministry is more conservative in its forecast for this year, predicting a only a 1.7 percent growth for 2014 and 2 percent growth in 2015 in its forecast released in April.

The moderate improvement in the EC's forecast of Czech economic development reflects above all positive data from the beginning of this year, said David Marek, chief economist of company Patria Finance.

"The EC's estimates now only minimally deviate from the average estimate on financial markets," Marek said.

After several years of stagnation, consumer spending is expected to start contributing positively to a growth thanks to an increase in real wages and improving labour market prospects, helped by low inflation, the EC said.

The inflation rate was 1.4 percent in the Czech Republic last year, according to the EC. It is expected to reach 0.8 percent this year and 1.8 percent in 2015, according to the forecast.

The growth of the Czech economy considerably accelerated in the last quarter of 2013 already, the forecast said.

This was partly driven by transitory factors such as the pre-stocking of tobacco in anticipation of a change in taxation and some advanced investment purchases in reaction to the significant weakening of the crown by the Czech National Bank.

The economic recovery is expected to lead only to a delayed and modest improvement in the labour market. The unemployment rate is forecast to reach 6.7 percent this year and 6.6 percent in 2015.

The expected growth of the deficit to 1.9 percent in 2014 is to be caused by a sharp increase in public investment in EU-financed projects. Deficit-reducing measures include lower indexation of pensions, an increase in excise duties and one-off revenue from the sale of newly released frequency spectrum ranges.

In 2015, the general government deficit is to be affected by the already approved tax reform, according to the forecast.

However, the fiscal forecast is subject to some risks, the EC said.

Firstly, the dynamics of public investment crucially depends on the expected rebound in domestic as well as EU-funded investment projects.

Secondly, the forecast does not include a one-off expenditure related to a possible renewal of a lease contract for fighter jets in 2015.

EC's economic forecast for Czech Republic (spring 2014)

  2012 2013 2014 2015
GDP growth (%, y/y) -1.0 -0.9 2.0 2.4
Inflation (%, y/y) 3.5 1.4 0.8 1.8
Unemployment (%) 7.0 7.0 6.7 6.6
Public budget balance (% of GDP) -4.2 -1.5 -1.9 -2.4

Source: European Commission

Written by:
www.ctk.cz

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