By Jan Lopatka (Reuters, 29.9.2009)
Economic growth in the Czech Republic as well as other European countries will likely not return to levels seen before the global financial crisis, Czech central bank Deputy Governor Mojmir Hampl said on Monday.
Speaking at the Reuters Central and Eastern Europe Investment Summit in Vienna, Hampl said the Czech recovery would likely have the shape of an asymmetric "W," with a second low point, less deep than the first one, around mid-2010.
Hampl also welcomed a package of tax hikes and spending cuts approved by the Czech parliament on Friday, saying it was a sign of responsibility and a proper response to the country's fast-growing fiscal gap despite a poor growth outlook.
The bank, which has cut 250 basis points off interest rates to aid growth in the last year, left borrowing costs at an all-time low at a meeting last week, but said inflation risks have shifted slightly lower.
Hampl was speaking during a news blackout following the central bank's meeting last week, so could not directly comment on the bank's next policy move.
The Czech Republic saw gross domestic product fall 5.5 percent year-on-year in the second quarter, but eked out a 0.1 percent rise compared to the previous three months.
"We will see the first positive signs in the first half of 2010, then something like another dip and then the economy will eventually start growing," Hampl said. "This is our baseline."
The recovery would lead to lower growth rates than the up to the nearly 7-percent rises the Czechs had seen in past years.
"My suspicion is that if the economies do return to growth, the potential will be lower than prior to the crisis," he said.
"We will not return to excessive growth this prediction holds at least for the whole European Union. But for our prediction (for the Czech Republic) currently we can't see any good reason why we should see the potential growing as fast as before the crisis."
Economists have cast doubt on future growth rates given the need to tackle high levels of debt in both the public and private sphere and likely tighter lending conditions and controls.
BUDGET RESTRAINED
The Czech lower house of parliament approved a $4 billion package of tax hikes and spending cuts on Friday, one of the few moves to tighten fiscal strings so far outside countries that are drawing loans from the International Monetary Fund.
Hampl welcomed the approval, saying it was the right move and not any unnecessary early tightening given that it only narrows the 2010 budget gap to 5.2 percent of gross domestic product from 7.5 percent, according to government estimates.
"I'm really happy that we've seen a sign of responsibility on the side of Czech politicians," Hampl said.
The government expects the package to knock 0.6 percentage points off next year's growth, bringing it to -0.3 percent.
The bank sees 0.7 percent growth next year, but Hampl said it would take account of the fiscal plan in the next forecast update in November.
Hampl said there would be an impact on inflation from the tax hikes, but that the central bank excludes the effect of indirect tax changes when determining policy.
He said there was no need to comment on the crown currency, under the bank's usual policy that it does not speak on the level of the exchange rate unless it feels it strays far away from fundamentals. The crown has gained 6.13 percent against the euro so far this year.
(editing by Patrick Graham)