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Svejnar: GDP growth in CR next year would be a success

Svejnar: GDP growth in CR next year would be a success

9.12.2008 9:28

The global economic crisis will hit the Czech economy hard next year and a GDP growth in such situation would be a success, economist Jan Svejnar told CTK today.

Czech Finance Minister Miroslav Kalousek on Sunday put GDP growth for next year at between 2.5 and 3 percent.

Former forecasts, on which the state budget for next year has been based, reckoned on a 4.8 percent GDP growth.

"Based on developments elsewhere in the world, I expect the impact [of the economic crisis] to be tougher. We are an open economy. So my GDP growth estimate for next year is lower than the estimate of all institutions here [in the Czech Republic]. I expect that if we have a positive growth, we will be glad and it will be a success," Svejnar said.

Analysts say that the global financial crisis is already beginning to affect the domestic economy.

According to data made public today, Czech foreign trade sank into nearly a CZK 4bn deficit in October and unemployment in November grew to 5.3 percent.

Consumer inflation in November fell to 4.4 percent, the lowest level this year, because retailers were cutting their prices due to the weakening domestic economy.

Svejnar noted that over 80 percent of Czech GDP came from exports.

"The cooling and recession in western Europe will of course affect us. We can to a certain extent compensate it by finding new markets, but we have to expect a big slowdown," Svejnar said.

Svejnar sees the high share of the automobile industry as a week spot of the economy.

"This industry suffers most by these types of recessions. This is because, in contrast to food and other daily use items, people can postpone the purchase of a new car," Svejnar said.

The global economic crisis, which has caused recession in the whole euro zone, has now hit also Czech companies with just a moderate delay.

Nearly 90 percent of domestic companies, and not only exporters, have announced a year-on-year fall in the volume of orders they have, according to a survey made by the Chamber of Commerce. The poll also shows that three out of five companies will have longer shutdowns at the turn of the year.

Svejnar believes that a tax cut, not only for companies but also for individuals, would now help Czech economy.
"I would propose a drastic cut in corporate income tax and compensate it by taxes in the real estate and consumer areas. This would help us to really be more competitive," Svejnar said.

Discussionc on EU level on how to raise demand would also be useful, he added.

Czech Premier Mirek Topolanek last week presented a strategy aimed at restoring confidence in the financial sector, preventing and eliminating risks stemming from the global crisis, stabilising economic environment and making it more flexible, and providing impulses for economic growth.

Businesses, however, lack the date of euro adoption and structural reforms.

Svejnar is of the opinion that the first feasible date for euro adoption is still the year 2012.

"We should try to go there and keep calm so as not to raise any suspicion on the financial market that we might be doing something unusual," Svejnar said, adding that delaying the date of euro adoption would be an unusual signal.

"This could be equally negative for the financial markets as a hasty and very fast [euro zone] entry," Svejnar noted.

Svejnar believes that euro adoption would bring more positive things than negative ones because Czech exporters would not have to grapple with exchange rate swings of the Czech crown which are causing them high financial losses.

Svejnar pointed at the fact that the neighbouring Slovakia will adopt the euro at the beginning of next year and Poland hurries to adopt the single European currency as well.

Generally, the trend is to adopt the euro fast. A helter-skelter attitude without good preparations would not be good, either, but our economy is equally well prepared as many other economies joining the euro zone. It would make no sense to be delaying things further for political reasons, Svejnar added.

Source: ČTK, Bloomberg

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