Gov't revises outlook for 2012

The latest forecast for the domestic economy is more optimistic than originally predicted, experts suggest.

Finance Minister Miroslav Kalousek amended earlier predictions for the economy Jan. 29, and suggested a new forecast will show a slight increase in GDP growth to a couple of tenths of a percent above zero in 2012, compared with his earlier estimates of a drop of 0 to 2 percent.

"The new forecast should be more positive; we expect the economy to expand 0.3 percent this year and the ministry's new forecast should be very close to that," said David Marek, chief economist at Patria Finance.

Speaking on a political talk show on TV channel Prima Family Jan. 29, Kalousek said the January economic prognosis should show "positive zero growth."

"This means no dramatic measures will have to be adopted this year, so I will not propose a VAT change in the year 2012," Kalousek added.

From Jan. 1, the value-added tax (VAT) charged on products at every stage of the production process rose from 10 percent to 14 percent on goods and services in the lower rate category, which applies to books, newspapers, medicines, food, housing and accommodation and other services.

The higher rate applied to all other goods dropped from 19 percent to 17.5 percent, with the two rates set to be unified at 17.5 percent next year.

Kalousek has conceded the possibility of a lower VAT on drugs, books and newspapers only if the basic VAT rate rises to 19 percent in coming years. However, Marek said it would not make sense for the VAT to go back down to 10 percent, which many are calling for.

"My guess is it would be different, not 10 percent. The Czech Republic has a large budget deficit, and there's no reason to decrease, so pushing the VAT back to 10 percent makes no sense from an economic point of view," he said.  

If the GDP does not fulfill the forecast, this would result in a gap of around 20 billion Kč ($1 billion/795 million euros) in the state budget, Marek said.

The approved state budget for 2012 is expected to run a deficit of 105 billion Kč; however, the government agreed to submit a modified budget in early February if January macroeconomic data proves worse than expected.

The official economic forecast was made public Jan. 31, after press time.

-Filip Šenk contributed to this report.

Laura Burgoine can be reached at
lburgoine@praguepost.com