Czech Republic Business Forecast Report Q1 2009

Publication Date	November 2008
Publisher	Business Monitor
Product Type	Report
Pages	73
ISBN Number	not applicable
Product Code	BMI03047

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Summary

Economy To Suffer Amid Eurozone Slowdown

As eurozone GDP growth slows to only 0.2%, with elevated risks of an outright recession, the Czech growth outlook will weaken markedly on the back of slowing export demand and reduced investment inflows in 2009. As a result, we now expect Czech GDP to expand by only 3.3% in 2009, with risks to the downside, compared to 4.3% forecast in 2008 and 6.7% in 2007. On the political front, the government's unpopularity and parliamentary minority will ensure that effective policymaking and structuraleconomic reform remains hampered. Nevertheless, we maintain that the Czech Republic remains one of the emerging European countries best placed to weather the global financial crisis, thanks to its relatively low external asymmetries.

Recent political developments have left Prime Minister Mirek Topolanek's Civic Democratic Party (ODS)led centreright ruling coalition critically weakened. An array of party infighting, low popular support, and regional and Senate election defeats have left his cabinet in power, but incapable of much meaningful reform or even stable policymaking. Subsequently, while we expect the ODS to remain in power through to the summer 2010 scheduled parliamentary election, we believe that there is a good chance of Topolanek being replaced by an internal challenger. Moreover, policymaking looks set to remain severely constrained over the medium term, which could be particularly damaging to the forthcoming Czech EU Presidency, due to commence in January 2009.

We now expect the current account deficit to contract slightly to 2.8% of GDP in 2009, from 3.1% in 2008. As net capital inflow growth contracts on the back of a eurozone and domestic growth slowdown and the global credit contraction, imports and the income deficit should fall somewhat faster than exports. That said, we caution that with FDI and portfolio investment coverage of the deficit likely to come under increasing strain, the risks to macroeconomic stability could still rise. The growth slowdown also looks set to inform monetary policy, with a combination of weak lending and an increasingly benign inflationary outlook likely to result in an end2009 2week repo rate of 2.00% (from 2.75% in November 2008).

The Czech Republic remains amongst the better business environments in central and eastern Europe. It has comparatively welldeveloped infrastructure and a highly skilled workforce capable of advanced manufacturing and services. It ranks third best in emerging Europe in Transparency International's 2008 Corruption Perceptions Index. However, the country's ranking in the World Bank's Doing Business report fell by ten places in 2009 to 75th (out of 181) from 65th in 2008, with the ease of trading across borders and ease of getting credit categories dropping markedly.

Content

Executive Summary
Economy To Suffer Amid Eurozone Slowdown
Chapter 1: Political Outlook
- Swot Analysis
- Bmi Political Risk Ratings
- Domestic Politics And Foreign Policy
- Weakened Government Will Struggle With PolicyMaking
- A Series Of Recent Defeats Has Left The Czech Government Severely Constrained In Its Ability To Make Policy
List Of Tables
- Table: Czech Political Overview
- Chapter 2: Economic Outlook
  - Swot Analysis
  - Bmi Economic Risk Ratings
  - Economic Activity
  - Growth To Slow In 2009
  - A Combination Of A Forecast Eurozone Growth Slowdown And The Ongoing Global Financial Crisis Has Caused Us To
  - Revise Down Our 2009 Czech Gdp Growth Forecast To 3.3% (From 4.3%)
List Of Tables
- Table: Economic Activity
- Monetary Policy
- Further Rate Cuts Ahead As Economy Slows
- The Decision By The Czech National Bank To Slash Its Benchmark TwoWeek Repo Rate By 75bps Is Indicative Of A
- Deteriorating Economic Growth Outlook And An Increasingly Benign Inflationary Environment
List Of Tables
- Table: Monetary Policy
- Balance Of Payments
- C/A Deficit To Narrow On Slowing Income Deficit Growth
- We Expect The Czech Current Account Deficit To Narrow To 2.8% Of Gdp In 2009 From 3.1% In 2008, Due To A
- Marked Slowing In Import And Income Debit Growth
List Of Tables
- Table: Balance Of Payments (Euro)
- Fiscal Policy
- Fiscal Situation To Suffer Amid Slowdown
- A Combination Of An Economic Slowdown And Hamstrung Domestic Politics Have Caused Us To Revise Our Czech
- 2009 General Government Deficit Forecast Up To 2.5% Of Gdp (From A Previous 2.1% Projection), In Anticipation
- Of Falling Revenues And Elevated Spending Pressures
List Of Tables
- Table: Fiscal Policy
- Regional Outlook
- Strategic View: Demand Destruction Key For Negative Outlook
- A Significant Demand Slowdown In Both The Us And Eurozone In 2009 Will Dramatically Impact The Economies Of
- Central And Eastern Europe
List Of Tables
- Table: Europe Sovereign Ratings Evolution Of Ability To Pay
- Table: Europe Sovereign Ratings Evolution Of Willingness To Pay
- Chapter 3: 10 Year Forecast
  - The Czech Republic Economy To 2018
  - Effective Convergence By 2018
  - We Forecast The Czech Republic To Have Effectively Converged In Both Economic And Political Terms With The
  - Eurozone By The End Of Our 10Year Forecast Period In 2018
List Of Tables
- Table: LongTerm Macroeconomic Forecasts
- Chapter 4: Special Report
  - Why The Us Can Remain World Superpower
  - Wealth Is Shifting East
  - The Uss Current Financial Woes Will Not Necessarily Undermine Its Position As A Global Superpower
List Of Tables
- Table: Geopolitical Power Index
- Chapter 5: Business Environment
  - Swot Analysis
  - Bmi Business Environment Risk Ratings
  - Business Environment Outlook
List Of Tables
- Table: Bmi Business And Operational Risk Ratings
- Institutions
List Of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
List Of Tables
- Table: Europe, Fdi Annual Inflows
- Table: Bmi Trade Ratings
- Table: Czech Top Export Destinations
- Market Orientation
- Chapter 6: Key Sectors
  - Pharmaceuticals
List Of Tables
- Table: Czech Republics Generics Market Forcast
- Tourism
List Of Tables
- Table: Czech Republics Tourism Industry Historical Data And Forecasts
- Chapter 7: Bmi Global Assumptions
  - Global
List Of Tables
- Table: Global Assumptions
- United States
- Eurozone
- Japan
- China
- Commodities