By Jason Hovet
PRAGUE, Jan 29 (Reuters) - The Czech economy will contract
by 1.5 percent this year before rebounding in 2010, but low
government debt levels should keep its sovereign rating intact,
Fitch rating agency's director for emerging Europe said.
Like other export-reliant central European countries, a
worsening outlook for the euro zone has pointed to a deeper than
thought economic slowdown for the Czech Republic.
Fitch's expectation that the Czech economy will contract in
2009 is a revision from an earlier estimate of around 1.5
percent growth, Fitch director for emerging Europe sovereigns
David Heslam told Reuters late on Wednesday.
"We are expecting a recession in 2009," he said. "That
reflects largely the collapse in demand from the Czech
Republic's euro area core export markets."
Fitch predicts the Czech economy will rebound in 2010 with
1.9 percent growth, but with risks on the downside, Heslam said.
Growth is expected to have slowed to around 4 percent last year,
after expanding by about 6 percent since 2005.
The Czech Republic's low indebtedness has traditionally
helped it maintain better ratings than its regional peers, and
Fitch has it with an A+ rating and a stable outlook.
It gives Poland an A- rating, while Hungary, which had to
seek an IMF-led $25 billion aid package in October after
concerns over its external financing, is rated BBB.
Heslam said the Czech rating should not be affected by the
downturn, which will also hit fiscal performance.
"The government debt of the Czech Republic is relatively
low. There is some room for the automatic adjusters to work
their way through the cycle," he said.
The forecast for a contraction is a significant reversal
from the outlooks of most analysts who last year saw all of
central and eastern Europe largely insulated from the economic
crisis.
Now most analysts expect Czech growth to hover around zero
this year. Central bank Governor Zdenek Tuma said this week he
expected "a little" growth and the government has trimmed its
forecast to 1.4 percent, from 3.7 percent.
Finance Minister Miroslav Kalousek said at the weekend the
deficit could double to nearly 75 billion crowns ($3.57 billion)
as a result.
The Finance Ministry mandated three banks this week to lead
a Eurobond issue, its first since June 2008 when it sold 2
billion euros of a 10-year bond at 25 basis points over swaps.
Poland priced its own Eurobond issue last week at 300 basis
points over mid-swaps, a steep rise over a previous issue sold
at 60 basis points over swaps and reflecting a crowding market
as euro zone states borrow to fund stimulus packages.
Heslam said the general government deficit will likely
double to around 2.2 percent of gross domestic product in 2009,
from around 1 percent last year.
"If it was a temporary deterioration that reflected the
economic cycle then it wouldn't have an impact (on the rating),"
he said. "If it became a permanent deterioration in public
finances over the medium term then you could see negative
pressure on the rating mounting."
"Although given the current relatively low general
government debt level there is some way to go," Heslam added.
(Reporting by Jason Hovet; Editing by Andy Bruce)
