Czech economy to stagnate or grow marginally in 2012

 In its latest quarterly macroeconomic forecast, the Czech Ministry of Finance says the Czech economy should stagnate or grow by up to 0.2% in 2012. The ministry, however, warns that due to the highly uncertain situation in the eurozone, the forecast is tentative and thus a downward revision is quite possible.

At the same time, the ministry released preliminary key figures for 2011 that show the Czech economy grew by 1.8 percent last year, despite the economy actually contracting 0.1% in Q3, while the budget deficit reached the level of 3.7% of GDP.

In spite of the ministry's warning of a potential worsening of the economic situation in the eurozone with a direct knock-on effect to the Czech economy, the mood among members of the Czech Confederation of Industry (SPD) appears to be more upbeat: "Enterprises are not panicking, and within them no deep pessimism is evident.'

"Enterprises are not panicking, and within them no deep pessimism is evident. Most branches of industry don't expect a repeat of the situation that occurred in 2008. Moreover, now they're better prepared for the current situation compared to back in 2008 and 2009, and they're acting accordingly," SPD Vice President Radek Špicar said.

In its previous quarterly forecast, published last October, the ministry predicted economic growth of 1% in 2012; it now expects the state budget deficit could rise to 3.8% of GDP under the current budget plan - and that taxation and spending revisions may be required to achieve the 3.5% ceiling set by the European Union's Maastricht criteria.

The latest forecast foresees consumer price inflation reaching 3.2% this year before slowing to 1.5% in 2013, with wage inflation between 2% and 2.6%. The ministry also predicts the average rate of unemployment to reach 7.0%, up from the provisionally calculated level of 6.7% in 2011. "The change in comparison to the previous forecast is caused especially by the further escalation of problems in the eurozone and the worsened macroeconomic perspectives of our main trading partners.'

"The change in comparison to the previous forecast is caused especially by the further escalation of problems in the eurozone and the worsened macroeconomic perspectives of our main trading partners," the ministry said in the report.