Czech Republic: Weak consumption
Falling investment and recession in major export markets contributed to a sharp downturn at the beginning of this year. Real GDP turned slightly positive in the second quarter, largely due to a pick-up in exports and continued, albeit weak, consumption growth. A gradual recovery is projected for 2010 and 2011, driven by stronger investment and export demand, though weak consumption will act as a drag on growth. Inflation has been negative during part of 2009 but is expected to rise gradually to about 2% in 2011.
The government responded to the downturn with two stimulus packages and cyclical factors will further increase the general government deficit. However, there is little room for further discretionary fiscal easing and parliament has already approved a fiscal consolidation plan to reduce the government deficit. Sustaining the consolidation effort over the longer term will require addressing large unresolved spending issues, particularly in health care, welfare and pensions as part of the necessary exit strategy.
©OECD Observer 2010