After a contraction of 0,9% in 2012, the Czech economy continued to shrink over the past year (-0,9%). The weak economic performance it is partly the result of austerity measures, such as the increase in tax revenues, cuts in public spending and the decrease in household and business confidence, with a consequent impact on domestic demand. At the same time, the reduced demand from the EU trading partners hit exports. With over 75%, the Czech Republic's export/GDP ratio is one of the highest in the EU, which makes the country particularly vulnerable. The contribution of net exports to GDP turned negative when Eurozone growth fell by 2013% in 0,4. However, le forecasts published by Atradius speak of a growth of about 2,5% this year and +2,8% in 2015. And if the recovery should then benefit from the increase in private consumption? and investments, a recovery of net exports is expected thanks to the more favorable economic conditions in the Eurozone, particularly in Germany.
The unemployment rate local reached 6,5% in April, down compared to 7,1% in the same period of the previous year, significantly lower than that of the Eurozone. According to forecasts, unemployment is expected to decrease further, reaching 6,0% in 2015.
Despite the economic contraction, the state of state finances improved markedly in 2013 as evidenced by the data on the budget deficit (1,5% from 4,2% in 2012), expected this year at 1,8% of GDP. Consequentially, la European Commission has removed the Czech Republic from the excessive deficit procedure to which EU Member States are bound in order to avoid excessive deficits in their national budgets. Public debt decreased slightly in 2013 (to 46% of GDP), but remains at moderate levels. The level of external debt has increased since 2011 (from 42% of GDP in 2007 to 56% in 2013): a further increase is indicated for this year (59,6% of GDP), while remaining manageable.
In fact the international financial markets have an overall positive view of the Czech Republic. Yields on 10-year government bonds increased in June 2013, due to heightened political uncertainty following the resignation of Prime Minister Necas and the appointment of a caretaker government. In May of this year the average yield was 1,73%, close to the German one of 1,46%. The returns lower rates then make it more convenient for the government to finance the debt and therefore reduce the pressure on public budgets.
In order to improve the Czech competitiveness and boost exports, in November 2013 the Central Bank it intervened in the currency market with the purchase of Euros, in order to weaken the Crown against the single currency. As a result, the exchange rate fell from 1:25,7 to 1:27, remaining stable in 2014, at around 27,4 kroner. In this context the second goal of the Central Bank's intervention was to avert the risk of deflation, which would have made imports more expensive. Since the end of 2012, consumer prices have begun to fall and are now in line with the Eurozone average. Inflation reached just 0,5% in May 2014, well below the target set (between 1% and 3%). For this reason, after the 0,6% increase in 2014, the general price level is expected to increase by 2,2% in 2015.
