Czech Republic Business Forecast Report Q4 2008

Publication Date	August 2008
Publisher	Business Monitor
Product Type	Report
Pages	64
ISBN Number	1746-5761
Product Code	BMI02419

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Summary

Slowdown Ahead

Both the economic and political outlook in the Czech Republic are looking dicey alongside a general slowdown in the eurozone and persisting parliamentary ructions in Prague. That said, while risks are likely to elevate through 2008 and 2009, the core conditions are expected to remain generally healthy. Economic growth for instance, while forecast to slow to 4.3%, should continue to outperform the eurozone. At the same time, the strong inflationary pressures in play since mid-2007 are likely to subside markedly, with headline CPI growth coming in at 3.0% y-o-y by end-2009.

Healthcare and pension reform will continue to be the core policy priority for the Czech government over the medium term. That said, weak polling numbers, a tenuous majority in parliament and public opposition to market liberalisation of major public institutions will mean that the Civic Democrat-led coalition will have difficulties maintaining momentum for further initiatives. Other flashpoint issues such as participation in a planned US missile defence shield could even result in the government losing a no-confidence vote, which would likely see the opposition Social Democrats taking the lead in a new coalition.

We have revised down our medium-term economic growth forecasts for the Czech Republic to take into account increasing signs of a marked eurozone deceleration in 2008 and 2009 as well as steadily worsening domestic consumption indicators. Our core scenario now is for real GDP to expand by 4.3% both in 2008 and 2009, with a recovery to 4.8% forecast for 2010.

We have revised down our Czech monetary policy outlook to take into account the Czech National Bank (CNB)'s decision to cut rates on August 7. We now expect the central bank to hold its benchmark two-week repo rate at 3.50% through 2008 and 2009. A further 25bps cut cannot be discounted though, especially should inflation fall off more rapidly then currently factored for on the back of a more rapid decline in global commodity prices and domestic demand growth than we are expecting.

As an established member of the EU and one of the most economically developed states within the emerging Europe region, the Czech Republic's business environment benefits from a high level of institutional capacity, well-developed infrastructure network, liberal market regulations and open trade access with a huge economic market. A stable political environment with low security risks and a highly skilled and educated workforce also makes the economy attractive for the foreign investor. While not a major problem, corruption still exists, especially at the administrative level and this poses the greatest risk to the Czech

Content

Executive Summary
- Slowdown Ahead
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Elevated Risks to Coalition Stability
- Healthcare and Pension Reform Will Continue to Be The Core Policy Priority for The Czech Government over The Medium Term.
- Table: Czech Political Overview
- Foreign Policy
- Further Ructions with Russia Likely
- We Expect Tensions between The Czech Republic and Russia to Remain Pronounced through The Medium Term as The
- Czech Parliament Proceeds with Formal Debate over Legislation That Would Allow for A US Radar Station to Be Located
- in The Country.
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Slowing Consumption to Weigh on Economy in 2008/2009
- We Have Revised down Our Medium-Term Economic Growth Forecasts for The Czech Republic to Take into Account
- Increasing Signs of A Marked Eurozone Deceleration in 2008 and 2009 as Well as Steadily Worsening Domestic
- Consumption Indicators.
- Table: Economic Activity
- Exchange Rate Policy
- Czk: Reversal Signals Suggest A Move to Czk25.50/Eur
- The Czech Koruna Is Expected to Depreciate over The Medium Term, as The Economy Weakens amid A General
- Eurozone Slowdown.
- Monetary Policy
- Rates to Hold at 3.50%
- We Have Revised down Our Czech Monetary Policy Outlook to Take into Account The Czech National Banks
- Decision to Cut Rates on August 7.
- Table: Monetary Policy
- Balance of Payments
- Risks to Outlook
- We Forecast The Czech Current Account Deficit to Widen to 3.1% of Gdp in 2008 and Further to 3.2% The following Year.
- Table: Balance of Payments
Chapter 3: 10-Year Forecast
- The Czech Economy to 2017
- Effective Convergence by 2017
- We Forecast The Czech Republic to Have Effectively Converged in Both Economic and Political Terms with The Eurozone
- by The End of Our 10-Year Forecast Period in 2017.
- Table: Czech Republic Long-Term Macroeconomic Forecasts
Chapter 4: Special Report
- Mega-Urban Regions
- Table: The Worlds 30 Largest Urban Agglomerations
- Table: The Worlds Richest Cities in 2020 by Gdp
- Table: The Worlds Fastest Growing Urban Areas by Population
Chapter 5: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
- Table: Bmi Business and Operational Risk Ratings
- Intuitions
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
- Table: Emerging Europe Fdi
- Table: Bmi Trade Ratings
- Operational Risk
- Table: Top Export Destinations
Chapter 6: Key Sectors
- Pharmaceuticals
- Executive Summary
- Bmi Estimates That The Czech Otc Drug Market Should Reach A Value of US$0.86bn by 2012, Representing A
- Market Share of 18.41%. by Contrast, The Prescription Drug Sector Share of The Overall Market Should Fall to 81.6%
- in 2012, from 82% in 2007.
- Table: Czech Republics Drug Market Forecast Indicators, 2005-2012
- Infrastructure
- Executive Summary
- Bmi Believes That The Czech Republics Infrastructure Will Offer The Country The Opportunity to Develop Its Economy
- through The Growth of Local Industry and Business and Will Also Encourage Foreign Investors, Who Wish to Finance
- Operations within The Emerging Markets of Eastern Europe and Will Be Drawn to A Country Which Offers A Modern
- Transport Sector, A Reliable Power Supply, A Secure Political Atmosphere and A Stable Business Environment.
- Table: Industry and Construction Data
Chapter 7: Bmi Global Assumptions
- Global Outlook
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities