Economic activity in the Czech Republic is likely to remain flat this year after the post-crisis recovery stalled in the second half of 2011 due to a slowdown in exports, the International Monetary Fund said Friday.
The Czech economy is forecast to expand just 0.1 percent this year, after an estimated 1.7 percent growth in 2011, the lender said after its Executive Board concluded the Article IV consultation of the country. Next year, gross domestic product is expected to increase 2.1 percent.
"The Czech economy is well positioned in the current global economic climate, underpinned by prudent policies and strong fundamentals," the report said.
"Against the backdrop of an uncertain external environment, Directors encouraged the authorities to remain vigilant to the growth outlook, continue to strengthen the policy framework for financial stability, and accelerate structural reforms to enhance competitiveness and potential growth."
Inflation is forecast to overshoot the target this year and is seen at 3.5 percent. A one-off impact of the value-added tax adjustment, and food and energy prices are expected to buoy inflation. The figure is seen falling sharply to 1.9 percent next year.
The country's current account deficit remained unchanged at 3 percent of GDP last year as robust exports and restrained imports offset the impact of an increase in the income deficit. The current account gap is forecast at 2.1 percent this year and 1.9 percent in 2013.
The fiscal consolidation has continued apace, the report said. Budget deficit is seen at 3.5 percent of GDP this year, down from an estimated 3.5 percent last year. It is forecast to shrink further to 3.4 percent next year. General government debt is forecast at 44.9 percent this year and 44.6 percent in 2013.
The Czech National Bank reduced its key policy rate aggressively during the crisis and it now stands at 0.75 percent. Monetary conditions have been appropriately supportive of economic activity, the report said.
"Despite the recent inflation spike, inflation expectations remain well-contained, while the yield curve is consistent with a stable policy rate in the next several months," the IMF said.
"The floating exchange rate remains the main shock absorber."
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