Country Report Czech Republic July 2009

Summary

A non-partisan government took office in May to prepare the 2010 budget, ahead of the parliamentary election, brought forward to October 2009.
As the Civic Democratic Party (ODS) and the opposition Czech Social Democratic Party (CSSD) are running almost level in opinion polls, the election appears likely to produce a hung parliament.
The CSSD may be able to form a parliamentary majority with informal support from the far-left Communist Party of Bohemia and Moravia (KSCM).
Our outlook for the euro zone economy in 2009-10 is pessimistic. Based on this, and 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 the currency.
Inflation in 2008 was driven by increases in regulated prices and indirect taxes, but it is expected to fall sharply in 2009, as a result of lower import prices and weak domestic demand.
We forecast that the current-account deficit will average 2.2% of GDP during the forecast period.

The election to the European Parliament, which was held on 5th-6th June, brought an important victory for the ODS.
The ODS won nine seats in the election, the CSSD won seven, the KSCM won four and the Christian Democratic Union-Czechoslovak People's Party (KDU-CSL) won two.
The future of the KDU-CSL is under threat, following the departure in May of a former party leader and a former finance minister, Miroslav Kalousek, who has established a new centre-right party, TOP 09.
The cabinet approved a medium-term budget spending framework for 2010-12, based on the April macroeconomic forecast of the Ministry of Finance.
On the accruals-based accounting methodology for the EU (ESA 95), the budget deficit would be 5.1% of GDP in 2010, 4.9% in 2011 and 4.2% in 2012.
The economy contracted by 3.3% year on year in the first quarter of 2009, owing to the poor performance of manufacturing and exports.
The current account recorded a surplus of US$1.2bn in the first quarter of 2009, compared with a surplus of US$1.8bn a year earlier.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52