Sharp deceleration in growth and inflation
Overview:
Strong economic policies will not stop the Czech Republic enduring a sharp economic slowdown as a result of the global economic crisis. Exports are equivalent to a huge share of GDP and these are mainly directed towards the EU1. Hence, despite suffering few significant macroeconomic imbalances the growth outlook in the Czech Republic is a good deal worse than it was just a few months ago. Nevertheless, with inflation falling, the koruna stabilising and having a good track record on fiscal policy the authorities have been able to respond to the crisis with both lower interest rates and a significant fiscal expansion. The economy, then, is well placed to return to a high medium-term growth rate although the start of the recovery will still be highly contingent on a better economic outlook in Germany and the EU.