(Adds FinMin comments in paras 6-7, updates crown)
By Jan Lopatka
PRAGUE, Feb 15 (Reuters) - The Czech economy picked up speed
at the end of 2007, confounding expectations of a slowdown, but
fiscal tightening and weaker euro zone growth are expected to
take their toll this year.
Gross domestic product jumped by 6.9 percent year-on-year in
the final quarter on a broad-based rise in spending, investment
and trade, the Czech Statistical Bureau said in Friday's flash
estimate.
Economists polled by Reuters had expected growth to slip to
5.6 percent. Full-year 2007 growth reached a record 6.6 percent.
The Czech fourth-quarter expansion lagged behind the
exceptional 14.1 percent reported in neighbouring Slovakia, but
was well ahead of Hungary which had a mere 0.8 percent rise.
The figure propelled the crown currency to fresh all-time
highs against the euro and further dampened chances of interest
rate cuts this year.
"This is of course very good news, but I expect that it is
the peak of the current potential," Finance Minister Miroslav
Kalousek told Reuters.
"In the coming years I expect quite decent economic growth,
but anyway I do not predict so high numbers," he said.
The statistical office gave no breakdown of the overall
figure but said health spending ahead of a January hike in
health care and medicine fees helped to boost the headline
figure by 0.5 percentage points. Detailed figures are due on
March 7.
The fourth quarter GDP figure was an increase from a 6.4
percent rise in the third quarter, revised up from 6.0 percent.
"It is positive information in light of the fact that the
euro zone slowed down, (and) the German economy did not grow
that fast at the end of the year," said David Marek, chief
analyst at Patria Finance.
"It is unambiguously another indication that the CNB
(central bank) may have been too quick with the scenario of
interest rates, when it predicted that they could start
decreasing. Reversely, now the market can start speculating that
another rate hike may be necessary."
Other analysts said that an expected inflation drop next
year may lead the bank to keep rates flat throughout 2008.
POLICY DILEMMA
The central bank raised the main repo rate by 25 basis
points to 3.75 percent last week, extending a tightening drive
started in 2005.
But its new quarterly inflation forecast indicated that
rates may have peaked and may start falling already in late 2008
as the economy cools and one-off inflation shocks abate.
Despite the strong GDP reading, there were some signs of a
slowdown toward the year-end. December industrial output lagged
expectations and December retail sales, released on Friday,
showed a lower-than-forecast 5.4 percent rise.
This year, government welfare cuts and tax reforms will kick
in, capping private spending.
The central bank forecast showed that the bank expected the
fiscal reforms to narrow the public sector fiscal deficit to 1.5
percent of GDP this year from 1.9 percent last year,
contributing to tighter policy.
The crown currency firmed to a new all-time high of 25.075
to the euro <EURCZK=> after the data from 25.100 earlier, but
later fell back to 25.23.
The currency has gained 11 percent over the past year,
driven by strong exports, regional sentiment and a narrowing
negative interest rate differential versus the euro zone.
(Reporting by Jan Lopatka, editing by David Christian-Edwards)
