* Czech economy falls 3.4 pct y/y in the first quarter
* The worst result ever, worse than expected
* Central bank may cut rates
* Economists see better figures from now on
(Adds details quotes, market reaction)
By Jan Lopatka
PRAGUE, May 15 (Reuters) - The Czech economy shrunk by 3.4
percent year-on-year in the first quarter, the worst figure on
record and a much worse result than expected as exports suffered
from a collapse of west European demand.
The market had expected seasonally-adjusted GDP fall of 2.4
percent, according to a Reuters poll of analysts,
The poor result strengthened chances the central bank may
lower interest rates to new all-time lows, although analysts
said the coming months would bring an improvement.
The drop mirrored much worse-than-expected results from
fellow central European states. The Hungarian economy plummeted
by 6.4 percent, and Slovak output fell by 5.4 percent, and
Germany, the key export market, reported a 6.7 percent
year-on-year decline.
"The drop in the real gross domestic product was influenced
by the poor development mainly in the processing industry, which
has for months been battling with a demand crisis, above all in
foreign markets," the Czech Statistical Bureau said.
But there was some resilience in consumer spending, the
bureau said.
"On the demand side of the economy, spending on fixed
capital dropped significantly, while household spending remained
roughly on the level of the previous year," it said.
The crown currency dropped slightly to 26.935 from 26.915
ahead of the data but later erased the losses. One trader said
central European currencies were supported by reports from the
past days solid financing position of Poland, the region's
biggest economy.
Analysts said the Czech economy may be turning a corner.
"The figure fits with the context of German GDP declining,
and also the fact that industrial output was down more than 20
percent in the first quarter," said Pavel Sobisek, chief
economist at UniCredit Bank in Prague.
"This looks quite pessimistic, but I think this is going to
be the worst figure in the time series. The second quarter will
already see a slightly better figure."
Analysts said the data opened the room for the possibility
the central bank would cut interest rates further, building on
225 basis points in cuts since last summer which brought the
main two-week repo rate to 1.50 percent, 50 basis points above
the main European Central Bank rate.
The statistics bureau did not release any detailed data in
its flash GDP estimate. It is due to publish detailed first
quarter figures on June 9.
- For story on analysts' expectations before the data release,
double click on []
- Slovak Q1 GDP []
- Hungary's Q1 GDP []
- Poland's Q4 GDP []
