Country Report Czech Republic February 2009

Outlook for 2009-10

• The ruling coalition, made up of the Civic Democratic Party (ODS), the Christian Democratic Union-Czechoslovak People's Party (KDU-CSL) and the Green Party, looks likely to survive until the next election, scheduled for 2010.
• Politically, it will be increasingly difficult to introduce deeper structural reforms, owing to the proximity of the general election, as well as a lack of consensus in the ruling coalition and in the ODS.
• The Economist Intelligence Unit's outlook for the euro zone in 2009-10 is pessimistic. Based on this, as well as sharply falling consumer and business confidence, we expect the Czech economy to contract in 2009, by 1.4%, compared with 4% in 2008. A modest recovery is expected in 2010.
• The Czech National Bank (CNB, the central bank) started to loosen monetary policy in August 2008. Further rate cuts are likely, given an expected fall in inflation in 2009 and sharp monetary loosening abroad.
• Inflation in 2008 was driven by increases in regulated prices and indirect taxes, but it will fall from 2009 as a result of lower import prices and weak domestic demand.
• We forecast that the current-account deficit will average 3.2% of GDP during the forecast period.

Monthly review

• The prime minister, Mirek Topolanek, reshuffled his cabinet in January. This involved the departure of the ministers of health, transport, regional development and education.
• The ODS passed a resolution at its December 2008 congress recommending that its members of parliament (MPs) vote in favour of the Lisbon treaty, increasing the chances of the treaty's ratification.
• The central state budget recorded a Kc19.4bn (US$1.1bn) deficit in 2008, well below the target of Kc71.3bn.
• The 2009 central state budget targets a deficit of Kc38.1bn. However, its underlying assumptions are unrealistic and the Ministry of Finance will adjust its targets by the end of January.
• Real GDP growth decelerated to 4.3% in the third quarter of 2008, the slowest pace of growth in more than three years, in response to a cooling in domestic demand.
• The heavily export-oriented automotive sector, along with a network of suppliers and components manufacturers, faces a significant drop in orders, amid very weak demand from western Europe.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;39;37
NAICS Code: 52;31;336

This report covers the following industry codes:
SIC Code: 60;39;37
NAICS Code: 52;31;336