EC Lowers Estimate of Czech GDP Growth for 2007 to 4.9 pct

EC Lowers Estimate of Czech GDP Growth for 2007 to 4.9 pct

The EC lowered the estimate of the Czech Republic's GDP growth for this year to 4.9 percent, while still in the autumn it had predicted a 5.1 percent growth, and the same growth as this year is to be seen in 2008, according to a spring prognosis released by the EC today.

The EC is more pessimistic in its estimates than the Czech Finance Ministry which has predicted a 5.3 percent GDP growth for 2007.

"I do not think the lowering of the forecast is too important. The Czech economy will still be growing fast, converging with the economic level of the advanced EU states," said HVB Bank analyst Pavel Sobisek.

Raiffeisenbank analyst Ales Michl said the EC forecast of Czech GDP growth is the most pessimistic of all.

"I think it does not take into account the unusually warm winter which has boosted Czech production and exports. Rising household consumption will pull this year's growth to at least 5 percent," said Michl.

The EC also worsened the outlook for Czech public finance gap. It expects the gap to reach 3.9 percent of GDP this year, and the Finance Ministry puts the figure at 4 percent of GDP.

In 2008, the deficit is to fall only moderately - to 3.6 percent of GDP. The Czech Republic will thus not meet the criteria necessary for euro adoption next year, either.

In 2004, the Czech Republic pledged that in 2008 the deficit would fall to 2.7 percent of GDP. The EC ascribes the worsening mainly to the growth in social spending before last year's general elections.

The Czech Republic's estimated public finance gap of 3.9 percent is the second highest in the EU, behind Hungary, said Sobisek.

"At the same time, the example of Hungary shows where a poor state of public finance leads - to a slowdown of the growth, high inflation and high interest rates," said Sobisek.

In contrast, unemployment data are optimistic. Unemployment should fall to 6.4 percent by Eurostat data this year and to 6.1 percent in 2008.

The EC believes that Czech economic growth will be pulled more by domestic demand in the years 2007 and 2008, while exports could fall moderately due to the crown's further firming.

The growth in household consumption will slow moderately - to 4.4 percent in 2008 from 4.7 percent this year.

Consumer prices will probably grow faster, though. The EC forecast puts Czech inflation at 2.4 percent for this year and at 2.9 percent in 2008.

These estimates are more optimistic than those of the Finance Ministry which reckons with inflation at 3.2 percent for next year. Its reps say inflation will be influenced by the planned public finance reform, in particular the raising of the lower VAT rate from 5 to 9 percent.

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