Country Report Czech Republic April 2009

Outlook for 2009-10

• The centre-right coalitioncomprising the Civic Democratic Party (ODS), the Christian Democratic Union-Czechoslovak People's Party (KDU-CSL) and the Green Partylost a confidence vote on March 24th that was initiated by the centre-left opposition, the Czech Social Democratic Party (CSSD).
• It is unclear whether there will be a reconfiguration of the parties in government, or whether an early election will be held. A reconfiguration would result in continued government ineffectiveness, whereas an early election could result in a stronger government.
• The Economist Intelligence Unit's outlook for the euro zone in 2009-10 is pessimistic. Based on this, as well as falling consumer and business confidence, we expect the Czech economy to contract by 3% in 2009. A modest recovery is expected in 2010.
• The Czech National Bank (CNB, the central bank) started to loosen monetary policy in August 2008. However, the CNB is likely to take a cautious approach to further rate cuts, owing to concerns about currency weakening.
• Inflation in 2008 was driven by increases in regulated prices and indirect taxes, but it will fall sharply in 2009, as a result of lower import prices and weak domestic demand.
• The current-account deficit is forecast to average 2.3% of GDP in 2009-10.

Monthly review

• In March the Green Party's National Council expelled four prominent party members, on the grounds that their dissent had damaged the organisation.
• Parliament is due to vote in April on the cabinet's anti-crisis package, which includes various measures aimed at lowering the tax burden on the private sector in order to protect jobs.
• The Czech economy grew by 0.2% year on year in the fourth quarter of 2008, owing to weak industrial sector performance, in response to a slump in external demand.
• The trade deficit was Kc15.3bn (US$765m) in October-December 2008, compared with a surplus of Kc17.9bn a year earlier.
• The current account recorded a deficit of US$3bn in the fourth quarter of 2008, compared with a deficit of US$2.1bn a year earlier. Inflows of foreign direct investment (FDI) in 2008 reached US$10.9bn, exceeding the current-account deficit of US$6.6bn.
• Consumer price inflation has continued to decline; it was 2% year on year in February, compared with 7.5% a year earlier.

Source: Country Report

This report covers the following industry codes:
SIC Code: 49;70;47
NAICS Code: 22;72;48