RPT-Moody's sees Czech growth above 5 pct in mid-term

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By Jan Lopatka

The Czech economy will slow a little from current expansion rates but will still grow at more than a 5 percent clip in the years ahead, rating agency Moody's said on Wednesday.

Moody's said in an annual report on the Czech Republic that the relatively favourable debt ratios of the central European country, which is a member of the European Union, and prospects for fiscal consolidation justified the positive outlook for its "A1" sovereign rating.

"Although the GDP growth rate will likely decline somewhat from the 6.1 percent annual growth rates registered in 2005 and 2006, it will still be in excess of 5 percent," Moody's said.

"Furthermore, it seems quite likely that Czech Republic will continue to experience growth rates slightly in excess of 5 percent over the medium term."

It said inflation would come back to around 2 percent in 2009 after a temporary spike next year, caused mainly by hikes in indirect taxes in January 2008.

The agency said the country's "number one problem" was the budget deficit, which the government sees at 3.6 percent of gross domestic product this year.

The government has adopted a series of measures meant to squeeze the gap to 2.95 percent in 2008 and eventually to 2.3 percent in 2010, and has acknowledged that additional reforms are needed to achieve the longer-term aim.

The Moody's report was in line with that outlook.

"It is not clear that the latest reforms will succeed unless and until they are complemented by more comprehensive pension and social welfare transfer payment reform as well as labour market reforms," the report said.

High budget deficits have forced the Czechs to give up 2010 as the country's euro entry target.

The country's new centre-right cabinet, which has been in office since January, has refused to set a new euro entry date, saying reforms had to come first and only their results would show when is the right time to adopt the single European currency.

Prime Minister Mirek Topolanek has said 2012 was still not impossible as a euro adoption date, provided the country adopts the necessary reforms.

Moody's rival Standard and Poor's raised its Czech rating by one notch to "A" last week. Fitch also rates the country "A."

Keywords: CZECH MOODYS/

[PRAGUE/Reuters/Finance.cz]