Czech Republic ‘already in recession,’ RB says

According to latest economic outlook by the Austrian banking group Raiffeisenbank, Czech GDP will contract by 1.2% in 2012

Headquarters of the Raiffeisen banking group in Vienna | na serveru Lidovky.cz | aktuální zprávy Headquarters of the Raiffeisen banking group in Vienna | foto: Raiffeisen Zentralbank Österreich AGČeská pozice
Headquarters of the Raiffeisen banking group in Vienna

Raiffeisenbank’s analysts forecast the Czech economy will retract by 1.2% in 2012 chiefly due to the economic slowdown in the eurozone. The Austrian-owned bank also predicts a rise in inflation reaching an average annual rate of 2.7% in 2012, and expects the exchange rate to stand at Kč 25.5 per euro at the end of this year, and Kč 24 per euro at the end of 2012.

“At the present moment, the economies of the eurozone and the Czech Republic are already in recession, and we expect the recession to last for three quarters and then for the economy to stabilize and a mild recovery to begin,” Pavel Mertlík, chief economist for Raiffeisenbank, Czech Republic, said in a press release issued on Monday.

The bank expects the economies of the eurozone to contract by an average of 1% in 2012. In its previous outlooks this year, Raiffeisenbank forecast small levels of growth for both the Czech Republic and the eurozone in 2012.

Now Raiffeisenbank warns of credit squeeze across Europe. “The new capitalization demands upon European banks could lead to a fall in the provision of credit across all Europe which together with spending cuts by governments, devaluation of financial assets and weakening consumer demand, will result in contraction of the European economy next year,” Mertlík said.

The Czech National Bank (ČNB), in its latest economic outlook published at the start of November, revised its growth forecast for the Czech economy in 2012 down to 1.2% from the previous prognosis of 2.2%. However, at the same time the bank published an alternative scenario based on almost zero growth in the eurozone and a slow strengthening of the crown, in which case the domestic economy could contract by 0.4%. The ČNB says it now considers this forecast to be more probable.