EC: Czech economy to grow by 0.8% in 2010

Brussels, Nov 3 (CTK) - Czech economy will grow by 0.8 percent next year and by 2.3 percent in 2011, while this year it may contract by up to 4.8 percent due to the global economic crisis, the EC said in its new forecast Tuesday.

The EC's estimate is more optimistic than the Czech Finance Ministry's latest forecast which puts GDP growth for next year at 0.3 percent and for this year expects a 5 percent fall.

Recession has ended in the second quarter of 2009 when real gross domestic product got stabilised. A moderate economic growth will follow in the coming quarters, the EC said.

Czech growth will be pulled in particular by better condition of global economy and thus also higher exports. Fall in investments, which will reach 7.9 percent this year, should also stop.

On the other hand, consumer demand will probably decrease notably in 2010 due to the not-too-good situation on the labour market and slow wage growth.

Global revival should be more important than a fall in private consumption caused by the austerity package, said UniCreditBank analyst Pavel Sobisek.

Despite that, GDP growth will not be sufficient to renew the process of catching up with the economic level of advanced EU countries, he added.

"Real convergence of the Czech economy will not progress at all in 2009 to 2011," he noted.

The economic revival in the Czech Republic will, however, be combined with the country's growing debt, the EC said.

Budget deficit is expected to reach 6.6 percent of GDP this year, 5.5 percent of GDP in 2010 and 5.7 percent of GDP in 2011.

Budget gap in EU member countries should not exceed 3 percent of GDP.

The EC also points at the uncertainty linked with the general election to be held at end-May 2010. It is hard to say whether the new government will adopt the necessary savings measures without which the Czech Republic's debts would grow significantly.

The Czech Republic's total debt was at some 30 percent of GDP last year, while this year it is to be 36.5 percent of GDP already, next year 40.6 percent of GDP and in 2011 even 44 percent of GDP.

This means that spending on debt servicing will grow, taking up most of the money from public resources designed for investments, the EC said.

Despite the economic downturn, the Czech Republic will keep one of the lowest unemployment rates in the EU, the EC forecasts.

Unemployment in the Czech Republic is to reach 6.9 percent this year, 7.9 percent in 2010 and 7.4 percent in 2011.

The Eurostat, however, has a method different from the one used by the Czech Labour and Social Affairs Ministry whose data are used more in the Czech Republic.

Czechs do not have to fear fluctuations in consumer prices, though. Inflation is expected to be at only 0.6 percent this year, while last year it stood at 6.3 percent. Inflation is to reach 1.5 percent in 2010 and 1.8 percent in 2011.

This means, among other things, that consumer price growth will not exceed 2 percent where pensions have to be indexed.

EC's macroeconomic forecast for CR:

2006 2007 2008 2009 2010 2010
GDP 6.8 pct 6,1 pct 2.5 pct - 4.8 pct 0.8 pct 2.3 pct
Unemployment 7.2 pct 5.3 pct 4.4 pct 6.9 pct 7.9 pct 7.4 pct
Inflation 2.1 pct 3 pct 6.3 pct 0.6 pct 1.5 pct 1.8 pct
Budget deficit - 2.6 pct of GDP -0.7 pct of GDP - 2.1 pct of GDP - 6.6 pct of GDP - 5.5 pct of GDP - 5.7 pct of GDP
Total debt 29.4 pct of GDP 29 pct of GDP 30 pct of GDP 36.5 pct of GDP 40.6 pct of GDP 44 pct of GDP

Source: EC