Preliminary GDP figures confirmed that the Czech economy already fell into the recession at the end of previous year. There are no details so far; however, it is easy to find the reason for GDP decrease: double-digit fall in exports. The second reason behind the sharp turnaround is tightening of credit standards making debt financing for business more expensive or difficult to obtain. Then, it is only a matter of time, where the domestic demand will be hit even more than now.
GDP growth slowed down to 3.5% after rising by 6.0% in 2007. It is harder than anytime before to say something about future, nevertheless, our forecast points to a decrease by 2.0% this year and mild recovery (0.5%) next year.
As the Czech economy is without any dispute in recession the necessity of fiscal stimulus gains momentum. Preparation works look to be careful but slow, slower that changing economic environment. There is also a reason for lower interest rates. The Czech National bank forecast GDP to increase by 2.0% in 4Q, actual figure is half of that. Thus, we can maintain are guess that the key CNB’s rate can go as low as 1% in June or July.