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EC: GDP growth to reach 6% y/y in 2006, slow down to 4.7% y/y in 2008.

EC: GDP growth to reach 6% y/y in 2006, slow down to 4.7% y/y in 2008. The European Commission (EC) has revised upwards its projection for the Czech Republic ’s GDP growth rate in 2006 and 2007 from 5.3% and 4.7% y/y to 6% y/y and 5.1% y/y, respectively. Nevertheless, country’s economic expansion is somewhat to decelerate to 4.7% y/y in 2008. In the forecasted period GDP will be mainly driven by accelerating private consumption supported by growing households’ incomes and buoyant credits, as well as by the gross fixed capital formation increase backed by sustained FDI inflows. At the same time, the net exports contribution to overall growth is to gradually decline because of stronger imports fuelled by households’ consumption and higher investments. Labour market development in the country has remained favourable thanks to the robust economic growth and thus the EC projects that unemployment rate is to continue its declining path at faster than previously forecasted paces to 7.4% in 2006, 7.1% in 2007 and to 6.9% in 2008, which the entry into force of new legislation promoting job search will contribute to. In addition, the recent wages’ hikes have been in line with labour productivity growth, providing for low inflation environment.

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