• In the following pages we present an updated outlook on the Czech economy, taking into account the latest economic releases for August and September.
  • The Czech economy has been hard hit due to the recession in western Europe as foreign demand for Czech exports plunged and investments suffered badly during the crisis. Economic activity dropped significantly in Q1 and Q2 this year, but it looks very likely that the economic contraction has reached the bottom and that we should see the economy recovering in coming quarters, albeit very gradually. We expect GDP to contract on average by 4.4% y/y in 2009 and grow 0.1% y/y in 2010.
  • The signs of recovery in the eurozone will have a positive impact on exports and production in the Czech Republic. Exports have already begun moving up and industrial production should improve by the end of the year. This will consequently affect investments, which are expected to gradually recover, but in H1 10 at the earliest. We expect private consumption to begin moving up but here we see downside risk to our forecast as fiscal measures approved by the government in order to cut the next year’s budget deficit will likely have a negative impact on consumption. Labour market conditions will continue to deteriorate with rising unemployment well into 2012.
  • Above mentioned fiscal measures create considerable uncertainty to our 2010 GDP forecast and clearly represent downside risk to our forecasts.