Czech Slump Deepens as Decline Stretches into 6th Quarter

The Czech recession deepened in the first three months, the longest economic contraction since current records began in 1996, as people and businesses spent less because of austerity measures and Europe’s debt crisis.

Gross domestic product fell 0.8 percent from the previous quarter, compared with a 0.3 percent decline in October through December, the Statistics Office in Prague said in a flash estimate today. The reading was worse than the median forecast of a 0.1 percent contraction in a Bloomberg survey of 13 analysts. The GDP fell 1.9 percent from a year earlier, the office said, without publishing a breakdown.

The $217 billion economy is enduring weak domestic demand as government policies focused on narrowing the budget deficit and Europe’s debt crisis curbed Czech exports such as cars and auto parts. After cutting interest rates to effectively zero last year, the central bank is debating whether to weaken the koruna currency to stimulate spending as the recession keeps the inflation rate below its target.

“The outlook remains gloomy,” Stanislava Pravdova-Nielsen, a Copenhagen-based Danske Bank A/S (DANSKE) analyst, said in a note before the data. “It’s generally expected the economy will remain in recession this year” and private consumption “is set to remain the main drag on growth.”

After cutting investment and raising some taxes to curb the budget shortfall in the past three years, the government of Prime Minister Petr Necas agreed last month to target a wider shortfall than initially planned in 2014, when elections are next held, to boost growth.

The government credits its measures with helping to cut borrowing costs to record lows, with the yield on the 10-year government bond falling to an all-time low of 1.52 percent on May 9, according to data compiled by Bloomberg.

Czech consumers aren’t signaling a turnaround in the economy as retail sales declined in five consecutive months through March and the confidence indicator worsened again in April after improving in two previous months.

Czech exports fell 4.4 percent in the first quarter, compared with a 5.2 percent slump in imports, according to the statistics office.

The central bank on May 2 cut its GDP outlook for 2013 to a 0.5 percent contraction and forecasts the economy to grow 1.8 percent next year.

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.