In this week's Business News: the government reduces its forecasts for deficit reduction; the Finance Ministry predicts slower growth; Moody's affirms the Czech Republic's stable rating; Koh-i-noor is to purchase a French gas company; the country's water management authority commissions a study into a massive canal project and the country's construction sector is hit by the weak economy.
Government revises deficit reduction plans
The government has been forced to admit that prior deficit reduction plans will have to be revised in light of the ongoing gloomy economic outlook. Former plans envisaged a reduction of the budget deficit to 0.9% of GDP by 2015; under the revised plans, that figure has been shifted upwards to 1.6% of GDP, according to data released on Thursday. Meanwhile, this year, the deficit is set to also be revised upward – from 3% to 3.2%, while the forecasts for the years 2013 and 2014 have also been changed.
Ministry of Finance forecasts slower economic growth
Photo: Svilen Milev, Stock.xchng
And in related news, the Czech Ministry of Finance has also conceded that the economy will not grow as fast as had previously been forecast. Indeed, according to new data also released on Thursday, GDP will contract this year by 0.5% and grow by 1% next year. Previous forecasts issued this April predicted 0.2% growth in 2012 and 1.3% growth in 2013. In 2015, growth is forecast to hit 2.7%. The Czech Republic is technically currently in a recession with three quarters of negative growth, contracting 0.8% in the first quarter of this year. Less economic activity means fewer tax receipts for the state and this is then reflected in increased borrowing. The government is in the midst of an austerity programme which has seen tens of billions of crowns cut or frozen in key programmes.
The international ratings agency Moody’s affirmed the Czech Republic’s existing A1 rating this week, which is a comfortable “investment grade” in the company’s assessment scale. The company also affirmed the country’s stable rating, noting that fiscal consolidation programmes were underway and risks of being affected by a euro-related contagion had hitherto been contained. In its assessment, Moody’s also noted that the government had successfully beaten its 2011 forecast for lowering the GDP budget deficit of 4%, achieving a figure of 3.1%, but also warned over the current weakness of the economy, with medium term concerns over the ability of the country to return to sustainable and viable levels of growth. On another plus side, the banking sector was singled out for praise, described as liquid, well-capitalised and well insulated from volatility in financial markets.
Koh-i-noor to purchase French gas company
Czech pencil maker Koh-i-noor Hardtmuth is set to purchase the propane and butane selling company Vitogaz ČR from French owners Rubis, according to reports. The purchase will be made by Koh-i-noor Holding, of which the pencil and arts supplies producer is a part. In 2007, the holding group acquired a plant called Ponas, which makes thermoplastics, in the town of Polička and also the Bulgarian school supplies company Hemus in the Bulgarian town of Burgas. Details regarding the Vitogaz ČR purchase have not been revealed, but estimates suggest it may have come to several hundred million crowns. Prior to being owned by Rubis, the company was owned by oil producer Shell. Commenting on the purchase, Koh-i-noor stated that it was providing the company with a “fourth leg”. The acquisition must still be approved by Czech anti-monopoly authorities.
Water management company commissions study into massive canal project
Photo: Jaroslav Kubec, Creative Commons 3.0
The Czech Waterways Directorate, a state agency that oversees and manages Czech waterways infrastructure, is commissioning a six million crown study to determine the viability of building a massive new canal connecting three major rivers. The plan, which has been under consideration more than a hundred years, would connect the Danube, Odra and Elbe rivers. The staggering project would require the digging of almost four hundred kilometres of canals in the east of the country from Poland all the way down to Austria as well as a west-winding canal traversing towards Pardubice. The aim would be to create new shipping lanes to assist in commerce. The study will seek to determine whether such a project is feasible and its potential environmental impact. Asides from the hundreds of billions of crowns such a project would be estimated to cost, protests have also been raised about the land acquisitions which would have to take place in order for construction to commence.
Euroconstruct lowers Czech construction forecast
The eurozone debt crisis has negatively affected the construction business and the Czech Republic is no exception according to a report by Euroconstruct, an association of construction firms, which specialises in forecasting trends in the industry. Estimates at the outset of 2012 predicted a 4.1% contraction in the Czech construction industry; this has now been revised downwards to 7.2%. In 2013, the fall is expected to be greater by a further 1.9% before reversing in 2014. Their analysis for the month of May also shows a 4% fall in employment for larger construction firms year on year. Both residential and non-residential construction are expected to continue to take a hit, according to Euroconstruct.