Bloomberg News

Czech Cabinet Firm on Deficit Cuts as Euro Woes Hurt Growth

November 17, 2011

(Updates with more fiscal targets in second paragraph, quote in fourth.)

Nov. 16 (Bloomberg) -- The Czech government will trim the budget deficit even as the euro area’s sovereign-debt crisis cuts the country’s economic-growth outlook, the Finance Ministry said today.

The ministry cut the target for the 2011 public-finance gap, the fiscal gauge for assessing a European Union member’s readiness to adopt the euro, to 3.7 percent of economic output, from an original goal of 4.6 percent. Next year’s deficit goal was reduced to 3.2 percent of gross domestic product, from 3.5 percent set in the 2012 budget draft.

The Czech Republic relies on demand from the EU to drive its economy as the bloc buys about 80 percent of its exports, including Skoda Auto AS cars. GDP growth will slow to 1 percent next year, from the 2.1 percent advance forecast for 2011, the Prague-based Finance Ministry said in an update of its fiscal outlook published on its website.

“Despite the sharply worsening outlook for the global economy, with a potential significant negative impact on the export-oriented Czech economy, the medium-term fiscal consolidation targets are still being preserved,” the ministry said in the document.

Czech GDP should expand 2 percent in 2013 and by 3.3 percent the following year, the ministry forecasts. The economy stagnated in the third quarter, versus the previous three months, showing the worst result since the country exited a recession in 2009, the statistics office said yesterday.

Premier Petr Necas’s Cabinet wants to avoid a repeat of 2009, when the worst economic contraction since the fall of communism hurt state finances and widened the fiscal deficit. Necas has pledged to cut the public-finance gap to less than the EU’s limit of 3 percent of GDP by 2013.

The Finance Ministry targets a 2013 deficit of 2.9 percent of GDP, narrowing to 1.9 percent in 2014.

--Editors: Alan Crosby, Andrew Langley

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


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