By Martin Dokoupil
PRAGUE, Oct 7 (Reuters) - The Czech Republic will be lucky
if economic growth only slumps to 3 percent next year as the
global financial crisis and a strong currency hammer businesses,
the head of a leading national industry lobby said on Tuesday.
The finance ministry and the central bank have slashed their
predictions for gross domestic product growth in 2009 due to
weakness in the European Union, the country's key export market.
But Confederation of Industry chief Jaroslav Mil was even
more pessimistic in an interview with Reuters.
"We will be heroes if we manage to grow by 3 percent," Mil
said. "It will be a very fast slowdown. I had a feeling that it
would be a smooth and soft landing, but this will be very hard
although it seems we will still be able to land."
The finance ministry said on Monday it may again lower its
estimates for next year's growth after a cut in September to 4.0
percent from 4.8 percent due to the turmoil on financial
markets.
The central bank expects GDP growth of 3.6 percent next
year, following a nearly record rise of 6.6 percent in 2007 and
the 4.1 percent seen this year.
Poor foreign demand -- key in a country whose exports amount
to 70 percent of GDP -- combined with gains for the crown
currency have already taken a toll.
In September, new export orders measured by the Purchasing
Managers' Index fell to an all-time low of 42.4 points, well
below the neutral 50.0 mark.
Volkswagen's <VOWG.DE> Skoda Auto, the top Czech firm by
turnover, plans to halt its lines for a week at the end of
October due to weak demand on European markets. The country of
10.3 million is highly dependent on the car industry which
employs 120,000 people.
Many companies have halted their hiring plans in response to
a worsening outlook, a recruitment executive said.
In the first case of major corporate failure in years, glass
maker Bohemia Crystalex Trading entered insolvency proceedings
last month, putting thousands of jobs on the line.
NO CRISIS, BUT CREDIT TIGHTENING
Like some other central European peers, the Czech Republic
has been relatively insulated from the global financial
meltdown, as its banks have excess liquidity, low exposure to
toxic mortgage debt and a low loan-to-deposit ratio.
Mil said banks have not yet significantly tightened
conditions for corporate lending but he already had signals that
this was in the pipeline in the coming weeks.
"It will come and I dare to say that this is a question of
weeks. I have signals from banking circles that they will come
up with it," he said. "This will be a big blow for small and
medium sized businesses."
The crown, helped by a robust economy and a track record of
firming amid low interest rates, became a safe haven for
investors this year, climbing as much as 19 percent year-on-year
to a record high of 22.925 per euro <EURCZK=> in July before a
correction to 24.515 on Tuesday.
The jump prompted industry, dependent on EU demand, to renew
calls for the Czechs to follow Poland and seek swift euro
adoption.
Mil said it was realistic to target euro zone entry in 2012,
and added he believed the government may announce the date soon.
The cabinet has so far resisted calls to set a schedule.
"I believe strongly that the government will be able to
announce a date by the end of the year...However the financial
crisis can change this view," he said.
(Editing by Patrick Graham)
