New numbers hint at recession

The Czech National Bank's (ČNB) worst-case scenario "alternate" economic forecast for 2009 appears to be coming true, and the possibility of a recession, which seemed unlikely just weeks ago, is now being considered after the latest reports from the industrial sector and the European Commission.

The EC's latest outlook for the 2009 economy, released Jan. 19, warns of a "dreadful" year ahead, with a 1.8 percent decline in Europe-wide growth with 11 of 16 eurozone countries posting negative growth. The EC predicts Czech GDP growth of 1.7 percent, a figure far more optimistic than the outlook from many Czech analysts. The ČNB's alternate forecast of 0.5 percent growth - down from a previous prediction of 2.9 percent - is becoming more of a reality.

"The worst scenario has become the central scenario, and now the ČNB will likely forecast growth below zero as a new worst case," said Marek Hatlapatka, an analyst at Cyrrus.

The ČNB will discuss 2009 economic outlooks at a meeting in February, where they are expected to adopt the lower growth figure as their primary forecast.

The ČNB was unavailable for comment at press time.

The Finance Ministry has ruled out the possibility of a Czech recession - which is defined as two consecutive quarters of negative growth - but some analysts are less convinced. Pointing to a 17 percent drop in industrial production in November - one of the worst declines in Europe - analyst Aleš Michl of Raffeisenbank said there was a "60 percent" chance of a 2009 recession.

"A recession is more complex than negative growth, because you must take unemployment, industry and the strength of the Czech crown together," Michl said. "Firms should forecast positive, neutral or negative scenarios and base their strategies on the results."

The Czech crown has weakened nearly 12 percent against the euro over the past six months, but it remains a burden for Czech exporters, who have had a eurozone recession added to their woes. The plummeting rate of industrial production comes mainly from the automotive industry, which has faced a dramatic drop in European demand over the past year.

"The drop in industrial production was caused by the decline in foreign demand," said Radek Ležatka, a spokesman for the Finance Ministry.

Though the likelihood of a 2009 recession is debatable, analysts agree that even the ČNB will be unable to stem the tide of negative influence from the eurozone.

"At this point, the Czech government and the ČNB don't have very potent tools to help Czech companies because of our dependence on foreign markets," said Michl. "They can lower interest rates, but the crucial markets are elsewhere."

Stephan Delbos can be reached at
sdelbos@praguepost.com