* PM says economy at bottom, does not see more big drop
* Sees bumpy ride ahead before recovery
* Budget requires tough restriction
* Next government must change budget structure
By Jan Lopatka
PRAGUE, June 3 (Reuters) - The Czech economy has hit the
bottom and should not see any more big falls but there is a
bumpy ride ahead with no quick recovery in sight, Prime Minister
Jan Fischer said on Wednesday.
Fischer, an interim prime minister who took office last
month to lead the country to an early election in October, said
his cabinet needed to adopt spending restrictions to keep the
budget gap at an acceptable level next year.
The Czech Republic suffered a 3.4 percent economic drop in
the first quarter as the export-dependent central European
country took a hit from collapsing demand in the neighbouring
Germany and other key markets.
Fischer, a non-partisan former head of the country's
statistical office who will not seek a term in the autumn
election, said output drops seen in the first quarter should not
be replicated in the coming period.
"I would say it will be a path on a bumpy floor and that
there will not be the kind of drops that we saw at the beginning
of the year," he told Reuters in an interview.
"But also there will not be any significant recovery,
improvement," the 58-year old non-partisan statistician said.
Gross domestic product in the euro zone, the main export
market for the country of 10.5 million which has not adopted the
euro yet, dropped 2.5 percent quarter-on-quarter and 4.8 percent
year-on-year in the first three months of 2009.
This kept the Czech outlook cautious.
"The development of the cycle abroad, mainly in Germany,
does not fill us with too much optimism," he said.
"Before some recovery comes, we will for some time keep
moving along the bottom."
The country saw over 20 percent average year-on-year drop in
industrial output in the first four months of 2009, including
April when analysts had expected an improvement.
But forward-looking indicators such as the purchasing
managers' index measuring current and expected output have seen
an improvement and analysts forecast some recovery in a Reuters
poll on Wednesday [].
The Finance Ministry forecasts a 2.3 percent full-year GDP
drop.
BUDGET ON FIRE
The Czech Republic has a relatively low debt and a stable
banking system which has prevented a sharp currency drop that
has forced fellow central European EU member Hungary to seek
foreign financial aid, but the crisis has burnt a deep hole in
the state budget.
Fischer said tough restrictions were needed to keep state
finances manageable, including next year.
The government aims to put together a central state budget
with a gap below 170 billion crowns, which will equal to an
overall fiscal gap of about 5 percent of GDP when put together
with regional budgets and other programmes.
Fischer said mandatory spending, which is ordered by laws
such as those on pensions and health, equalled 80 percent of the
budget and squeezed the room any next government will have to
move within.
"The government can label these issues but cannot solve them
within the timeframe and the mandate it was given," he said.
"But I see necessary to do this as a message (to the next
cabinet) because financing the budget further would create huge
complications.
"A political debate on the composition of the budget, the
size of mandatory spending, is what lies ahead for the next
(political representation)," he said.
The deep budget gaps, which the finance ministry expects to
prevail until at least 2012, will likely keep the country
outside the euro zone until 2015 or even later.
