By Petra Vodstrcilova
PRAGUE, Sept 16 (Reuters) - The impact of a global
economic slowdown on the Czech Republic may be much more
intensive than previously thought, central bank Vice-Governor
Mojmir Hampl said.
The Czech economy, which had grown at rates over 6 percent
in a catch-up with richer western Europe in the past three
years, has already been slowing and most economists expect weak
figures in the coming months.
Hampl told Reuters in comments approved on Tuesday for
release that the Czech Republic was not on the ropes as much as
the United States or western Europe, but a downturn was on the
cards.
"Indirect impacts can occur; they can be significantly more
intensive than it had appeared," Hampl said.
"European growth forecasts are being permanently revised in
one direction, the bad one, and that is an important piece of
bad news for the Czech economy."
The Czech Republic tends to track the fortunes of the core
euro zone economies, especially Germany, because the
ex-communist central European country is exceptionally dependent
on foreign trade.
Gross exports were equal to 70 percent of gross domestic
product last year, and while Czech firms have been outgrowing
demand in the west by winning larger market share, they will
still suffer from overall weakness of export markets.
Gross domestic product growth has already slowed to 4.6
percent in the second quarter from 6.6 percent in full-year
2007. The central bank predicts the economy will expand 4.1
percent this year and 3.6 percent in 2009.
Companies have warned they planned to cut back investments
and lay off workers due to the worsening outlook, aggravated by
the strength of a crown currency that is seen as a safe haven
for investors fleeing a world financial crisis.
The crown soared as much as 19 percent to the euro in local
currency terms to a record high of 22.925 in July before sliding
back toward 25, but has jumped again in the past days as the
collapse of Lehman Brothers sparked a new flight for safety.
Hampl said that spikes in risk aversion could bring new
strength to the crown.
"If bad news from the developed world proliferate and the
macroeconomic environment will not raise investors' appetite for
return into developed markets, it is not excluded that the story
from the first half of this year (when the crown firmed) will be
repeated to a certain extent," he said.
Hampl, a hawk on the seven-member central bank board in
recent months, said he was undecided on what policy response to
the current conditions he would advocate at the Sept. 25 board
meeting.
"I am not able to give a strong fundamental position now
that I will take into the policy meeting... unlike in previous
meetings," he said.
Hampl had advocated a rate hike earlier this year and did
not take part in the August meeting where the bank cut the main
interest rate by 25 basis points to 3.50 percent, 75 basis
points below the euro zone rate, in response to the souring
economic outlook and crown strength.
Hampl said the crown jump had been so big that he would not
have voted for a rate rise in August. Some analysts have
predicted more policy easing by the end of the year.
