Country Report Czech Republic March 2009

Outlook for 2009-10

• The ruling coalition—comprising 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 falling consumer and business confidence, we expect the Czech economy to contract by 2% 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.
• We forecast that the current-account deficit will average 2.3% of GDP during the forecast period.

Monthly review

• The previously wide gap in popularity between the ODS and the main centre-left opposition party, the Czech Social Democratic Party (CSSD), has narrowed markedly.
• The Chamber of Deputies (the lower house of parliament) ratified the Lisbon treaty in February, with 125 votes in favour out of a total of 197.
• In response to the economic downturn, the Czech government has adjusted its fiscal targets for 2009 to incorporate an anti-crisis package.
• The revised central state budget, the main component of the public finance balance, targets a deficit of Kc73.3bn (US$3.8bn), almost double the size of the budget originally planned.
• The Ministry of Finance has chosen the UK's Barclays Capital, Ceska Sporitelna (owned by Erste Group) and Deutsche Bank to manage the auction of a new Eurobond this year.
• The CNB cut interest rates by 50 basis points in February, bringing its key rate to 1.75%.
• According to flash estimates, real GDP growth slowed sharply in the fourth quarter of 2008, to 1% year on year, the lowest annual increase since 1999.

Source: Country Report

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