OECD: Robust GDP expansion to slow down, public deficit remains primary risk.

OECD: Robust GDP expansion to slow down, public deficit remains primary risk. According to the OECD’s Economic Outlook , the Czech economy is to continue its robust expansion in the next two years, albeit at decelerating rates. In full-2006 GDP growth is to reach 6.2% y/y increase in real terms, while in 2007 and 2008 it is to gradually slow don to 4.8% y/y and 4.6% y/y, respectively. The strong economic expansion will be mainly fuelled by the accelerating households’ consumption and robust fixed investments; exports will remain important driver of economic growth, but they will be accompanied by increasing imports as well. Meanwhile, the consumer price inflation is to grow from the expected 2.8% y/y in 2006 to 3.4% y/y in 2007 and 3.1% y/y in 2008, with the acceleration in 2007 being direct result from the higher excise taxes on cigarettes in environment of growing demand and higher energy prices, and rents deregulation. At the same time, thanks to robust economic development, the unemployment rate is to continue its declining trend and to reach 6.3% in 2008 from the expected 7.3% in 2006. On the other hand, OECD sees as major challenge and risk to future economic development the public finance stance, thus revising upwards its projection for the public finance deficit in full-2006 by 2.6pps y/y to 3.7% of GDP because of the lower VAT receipts accompanied with increased investment spending. Furthermore, the next two years growing public gaps to 4.1 and 4.3% of GDP will be observed. Among the reasons for the expected gradual increase of the public finance gaps are the planned overshooting of the 2006 budget plan, the abandoned euro adoption plan, as well as the stalled pension, healthcare and labour markets reforms. Overall, OECD projections are close to those of the Czech finance ministry and the central bank.