Gloomy IMF growth prediction for Czech Republic creates a stir

The International Monetary Fund has created a stir with a startlingly gloomy prediction for the Czech economy this year. The prestigious Washington-based institution says the Czech economy will shrink by 3.5 percent against a backdrop of a worldwide decline of 1.3 percent.

Photo: Štěpánka Budková

The IMF forecast has created something of a local stir because the institution has gone out on a limb with a prediction that it far worse than most so far from the economic crystal ball gazers. The Czech government and Czech National Bank only last week said the economy would shrink by a maximum 2.0 percent this year.

Former Czech finance minister, now chief analyst with Raiffeisenbank, Pavel Mertlík, sees the IMF prediction for the Czech economy as exaggerated.

“We see it as a little bit too pessimistic. Our own forecast is for a decline of 2.6 percent this year and this is based upon a precondition that the euro zone economy will decline by something like 3.0-3.5 percent and the German economy by about 5.0 percent.”

The IMF figures for the Czech Republic are worse than neighbouring Poland, where the economy will shrink only 0.7 percent; Slovakia which will see a 2.1 percent decline and Hungary with a negative 3.3 percent.

Pavel Mertlík

Mr Mertlik finds this Central European perspective puzzling.

“Another important point is that it is quite interesting that the IMF sees the Hungarian decline as less deep than the Czech one. I do not know of any such forecast by another institution. And currently, really, Hungarian economic problems are much worse - so one could maybe also question the consistency of the IMF forecast.”

Even with his own milder version of economic gloom, Mr. Mertlik still sees the overall Czech public sector deficit, including that of health insurance companies, ballooning this year to around 200 billion crowns, around 9.7 billion dollars. And the outlook for jobs is bleak.

“As regards unemployment, the worst is still to come. We think by the end of the year the unemployment level will be between 10.0 and 11.0 percent.”

The current unemployment rate is 7.7 percent.

But for Mr Mertlík the biggest question is not how bad it will be this year but whether next year will witness any signs of growth or a deepening recession.