2013-10-25 20:12:16 - New Country Reports market report from Business Monitor International: "Czech Republic Business Forecast Report Q4 2013"
We forecast the Czech policy rate to remain at 0.05% throughout 2013 given the lack of domestic inflationary pressures. With headline consumer price inflation falling within the central bank's target range of 2.0% += 1.0% in 2013, we do not expect the Czech National Bank to loosen policy further via extraordinary measures, such as foreign exchange rate intervention.
The ouster of former prime minister Petr Necas' conservative government in June should further support our expectation for the fiscal consolidation drive of the public sector to abate in 2013 and 2014.
This should help the gradual economic recovery via less pressure on household spending. Even with fiscal targets missed, the Czech Republic is on a sustainable fiscal trajectory in the coming years due
to low deficits and public debt.
We reiterate our view that the country will continue to post modest current account deficits for the foreseeable future. The country's status as a regional safe haven will ensure that stable financial inflows continue to cover the country's external financing needs.
Full Report Details at
- www.fastmr.com/prod/694755_czech_republic_business_forecast_repo ..
Major Forecast Changes
Despite the Czech Republic's worse than expected economic results in Q213, the country is poised for a modest turnaround this year as leading indicators signal that the worst may be now over. Although we have slightly revised down our forecast for growth for 2013 - from 0.2% previously to 0.0% this year, we maintain our expectation for a modest rebound of the Czech economy this year.
Key Risk To Outlook
A more pronounced slowdown in eurozone economic growth and in particular in Germany would have a negative effect on the Czech Republic's economic growth trajectory. Owing to the high degree of trade integration with Germany, the Czech Republic's economic recovery remains highly dependent on external demand remaining relatively receptive to Czech exports.
Partial Table of Contents:
Major Forecast Changes
Key Risk To Outlook
Chapter 1: Political Outlook
BMI Political Risk Ratings
Social Democrats And TOP09 Likely To Form Coalition
- We still believe that the most likely outcome of the likely early elections in October 2013 would be a coalition between the Social Democratic Party and the centre-right TOP09. However, we do not rule out a minority government led by the Social Democratic Party and supported by other left-wing parties.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Further Western Integration Ahead
- The Czech Republic will remain the most 'Western' of the Central and Eastern European states over the next 10 years, with per capita income set to reach the level of poorer pre-2004 EU member states by the early 2020s. The country will face some key challenges, namely fiscal pressures from an ageing population, relations between Czechs and immigrant minority groups and potential ructions with Brussels. That said, the Czech Republic will remain among the most politically, socially and economically stable countries in Europe through the next decade.
Chapter 2: Economic Outlook
BMI Economic Risk Ratings
A Turnaround In H213
- We reiterate our expectation for a turnaround in the Czech economy in H213, even though we have slightly revised down our forecast for real GDP growth for 2013 from 0.2% previously to 0.0%. The Q213 contraction of 1.3% y-o-y means that the recovery might take longer to materialise, but a number of leading indicators reinforce our long-held, above consensus forecast on growth for 2013.
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Smaller Current Account Deficits Ahead
- Although we have revised down our forecast for the Czech Republic's current account deficit for 2013 on the back of the slower pace of economic recovery, we reiterate our view that the country will continue to post modest current account deficits for the foreseeable future. Stable financial inflows should amply cover the country's external financing needs.
TABLE: CURRENT ACCOUNT
Deficits To Remain Elevated
- The Czech Republic will miss its budget deficit forecast of 2.8% of GDP this year, with the deficit likely to arrive at 4.5% in 2013, a slight deterioration of the 2012 outturn of 4.4%. The weak economy will continue to be the main drag on tax receipts, while a policy shift away from austerity towards growth-oriented measures will ramp up spending.
TABLE: FISCAL POLICY
Currency Manipulation Unlikely
- Despite very weak growth and the accompanying disinflationary pressures of subdued domestic demand, we reiterate our long-held view that the Czech National Bank is unlikely to ease monetary conditions further through foreign exchange intervention this year or next. The adverse impact of a weaker koruna on consumers and the dubious benefits it would have on the export sector are likely to dissuade the CNB from direct FX intervention.
TABLE: MONETARY POLICY
Hungary Model: No Blueprint For CE
Full Table of Contents is available at:
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