As recently posted by Intesa Sanpaolo, the Czech GDP contracted by 0,7% in 2013 due to the decline in investments and the stagnation of both foreign and domestic consumer demand. The growth dynamic returned to positive territory in 2014 (equal to 2,6% in the first quarter and 2,5% in the following three months). The positive dynamics of investments favored the recovery of the economy above all, which in real terms grew by 2,4% and by 5,6%, respectively, in the two quarters, in addition to the recovery, albeit more limited, of public consumption (in acceleration from 1,5% to 3,0%) and private consumption (up from 0,9% to 1,9 %). Industrial production grew by 3,1% in the third quarter, with the September figure (5,6%) above the average for the quarter. The unemployment rate fell to 7,1%, i.e. to the minimum of the last two years; retail sales increased 5,1% in the third quarter (accelerated from 4,8%). Foreign demand also maintained a good pace, with the export growth of +13,3% in nominal terms in the third quarter. For this year and 2015 theEconomist Intelligence Unit (EIU) expects GDP growth of 2,6%. Above all, investments are expected to support next year's growth (contribution for 1,2 points of gross domestic product growth) and domestic demand for private consumption, whose contribution to growth is expected to be 1pp. Due to the contained dynamics of the international prices of energy and raw materials and in the absence of inflationary pressures, the trend in consumer prices was very weak in 2014 (0,4% average from January to October). The EIU expects inflation to remain broadly stable in 2014, before gradually recovering next year as domestic demand strengthens.
Public deficit fell from 4,2% of GDP in 2012 to 1,5% the following year. The correction of the deficit was favored by the reduction in public expenditure, which went from 44,5% of GDP in 2012 to 40,9% the following year, and by the increase in budget revenues, which rose from 40,3% to 40,7 .XNUMX%. As indicated in the Tax Outlook published in May by the Ministry of Finance, in 2014 the public deficit should settle at -1,8%, worsening due to the increase in public spending (+3,7%) higher than that of budget revenues (+2,8, 3,0%). Although increasing, the public deficit is expected to remain below 2015% also in 2,3 when, according to forecasts, the budget deficit could settle at -XNUMX%. Public debt remained at the level of 46% of GDP in the two-year period 2012-2013 and is expected to decrease slightly to 44,9% in 2014, lower than the average of CEE countries (49,2%). If the deficit at 2,0% of GDP (target indicated by the Government for the three-year period 2015-17) were to be maintained in the long term, the debt would stabilize at around 50% of GDP, below the 60% threshold indicated in the Maastricht Treaty . In November, in a context of inflation expectations still low and below the target (range 1,0%-3,0%), the Czech National Bank (CNB) maintained its expansive monetary policy stance, keeping the policy rate at 0,05%. The Central Bank also reiterated its belief that, at the moment, the exchange rate is an additional tool, in addition to the policy rate, to pursue the inflation target: if necessary, it will be able to intervene on the foreign exchange market to avoid exchange rate appreciation and keep it close to 27 CZK against the euro (currently the exchange rate is 27,6 against the euro). It is believed that in the short term it will remain subject to volatility in relation to the dynamics of the risk appetite of international investors. An average exchange rate of 2014 kronor per euro is forecast for 27,7, with a slight depreciation to 28,5 in 2015 which would allow the real effective exchange rate, which has been gradually declining since 2011 but still above the long-term average , to realign itself to the average value of the last ten years. The country has managed to increase the volume of exports thanks to its competitiveness, despite the strengthening of the exchange rate in real terms (5,4% annual average) from 2000 to 2010. The improvement in exports then continued in recent years, with an appreciating real exchange rate (1,5% on the annual average).
In 2013, the current account deficit rose to 1,4% of GDP (from 1,2% the previous year). Despite the positive balance of the goods and services account, the income and transfer account deficit weighed on the current deficit. Last year, thanks to the surplus of the capital account and the financial account, the balance of payments was in positive territory. In the first six months of 2014 the current balance was positive, as was the balance of the capital account and, albeit slightly, also the financial one. A small current surplus (0,3% of GDP) is forecast for the full year and could remain close to zero next year. From a short-term perspective, there are no critical signs for the country's liquidity. The reserve cover ratio, i.e. the ratio between foreign currency reserves and the aggregate equal to the algebraic sum between maturing debt and the current account balance (which supplies the amount of the country's short-term financing needs) is estimated to be higher than threshold value 1 (3,2 in June 2014, expected to remain around 3,0 in 2015). External debt, equal to 50,7% of GDP in 2012, rose slightly in 2013 (54,8%), however remaining lower than the average for the CEE area (72,2% in EIU estimates). For 2014, a slight increase in external debt as a ratio of GDP is forecast, which in any case should not exceed 60% (56,4% according to the EIU). The competitiveness of the Czech Republic has remained stable in recent years and, based on the Global Competitiveness Index (GCI) published by the World Economic Forum, the main margins for improvement are underlined in the bureaucratic and fiscal system. The country's macroeconomic stability is also appreciable. The major element of economic vulnerability is instead represented by the low diversification of production activity, strongly linked to mechanics (over 50% of total exports) and to the economic cycle of the Eurozone. In the last twelve months, Credit Default Swaps (CDS) have progressively decreased reaching the current value of 69 bps, the lowest in recent years and well below the 189 bps currently recorded for the nearby Slovakia, thanks to the public deficit below 3,0% and the relatively low public debt and below 45%. The main rating agencies evaluate positively the relative economic stability that the Czech Republic is showing, with contained deficits. Fitch places the country in class A+; S&P assigns the Czech Republic an AA- rating; Moody's gives it an A1 rating.
