Analysts: Czech economy to expand by up to 2% in 2010

Prague, Oct 25 (CTK) - The Czech economy will grow by 1-to-2 percent next year, analysts polled by CTK said Sunday.

The growth will be limited by the budget savings package, according to them.

For this year, economists foresee GDP contraction of 4-to-5 percent.

Unless the austerity measures are adopted, the economy may rise 0.5 percentage point faster, analysts agreed.

Finance Minister Eduard Janota himself conceded that the impact of the package on economic growth is minus 0.8 percentage point.

According to the Finance Ministry, the economy will not grow by 0.3 percent next year but fall by 0.5 percent.

"If more or less the same version of the 2010 budget as the one proposed by the government is approved, the negative effects on the pace of economic growth will be minus 0.5 percentage point according to our preliminary estimate," said Raiffeisenbank analyst Helena Horska.

The economy will grow next year thanks to above all higher exports and rising inventories, while investments will continue falling, said UniCredit Bank's Pavel Sobisek.

Private consumption will also fall slightly, he added.

"A time of great uncertainty will continue in the economy affecting adversely firms' investments as well as household consumption," said CSOB analyst Petr Dufek.

Improvement of the economic situation in the eurozone is the main prerequisite of growth, said Patria Finance chief economist David Marek.

Average estimate of financial markets for GDP growth in the eurozone is 1 percent next year, he said.

Industrial production could also return to growth next year, according to estimates.

A fall of around 13 percent is expected by economists this year.

Unemployment will be another economic problem, the rate approaching the 10-percent level at the end of next year.

Inflation, in contrast, will not be a problem, the average rate just above 1 percent next year.

Janota's rescue package may raise inflation.

The Czech National Bank (CNB), for instance, says that the savings package may increase inflation by up to 1.3 percentage point.

"Inflation should remain at low levels due to recession and slow growth," said Marek. It may grow, however, owing to changes in excise duty and VAT, he added.

Budget savings will increase overall inflation but growth of indirect taxes, that is, VAT and excise duty, will be offset by fall in retail margins to a great extent, said Komercni banka analyst Jiri Skop.

Estimates of economic development in 2010 (in pct):
company GDP inflation industrial production unemployment (year-end)
CSOB 1 1,5 3 9,6
Raiffeisenbank 0.8 1.1 2 10
UniCredit Bank 1.4 2.8 (year-end) 5 9.6
Ceska sporitelna 1.9 1.4 7.9 9.5
Komercni banka 1.3 1.1 4.4 10
Patria Finance 1.5 2 2.4 9.3

Source: financial institutions