* Finance ministry revises 2009, 2010 GDP forecasts down
* Budget may have to be reassessed
* 2009 public sector gap seen above 5 pct of GDP
(Adds finmin confirmation, details, analyst, background)
By Jana Mlcochova
PRAGUE, July 22 (Reuters) - The Czech economy will contract
twice as fast this year as previously expected and grow only
marginally in 2010, which may force a review of budget plans,
the Finance Ministry said on Wednesday.
The ministry slashed the 2009 gross domestic product
forecast to minus 4.3 percent, the deepest contraction since a
post-communist crisis in 1991 and deeper than the 2.3 percent
shrinkage predicted in April.
Next year growth would be 0.3 percent, weaker than the
previous estimate of 0.8 percent, spokesman Ondrej Jakob said,
adding that details would be released at 2 p.m. (1200 GMT).
The new forecast shows the economy did not hit the bottom in
the first quarter as officials had hoped.
The country has suffered mainly from a collapse in west
European demand, its key growth driver, but has escaped a
financial sector meltdown thanks to high savings and relatively
low foreign debt.
The new estimates mean the state budget may have to be
adjusted to account for lower revenues. Finance Minister Eduard
Janota told daily Mlada fronta Dnes on Wednesday he would inform
the government of the budget review next Monday.
Analysts estimate a 1 percentage point drop in GDP
corresponds to a 10 to 15 billion crown ($550-$825 million) rise
in the central state budget deficit, which for this year was
seen at 170 billion crowns.
The ministry has in the past weeks forecast the central
government budget gap, the main part of the public sector
balance, would reach about 160-170 billion crowns this year,
versus the original target of 38 billion.
The government has already doubled its 2009 gross borrowing
target, including replacement of maturing bonds, to around 280
billion crowns.
Market rates did not react to the new estimates. The yield
on the 5-year Czech interest rate swap <CZKAM6PR5Y=> ticked up
by 2 basis points on Wednesday to 3.42 percent.
MID-TERM RISKS
The overall public sector deficit this year and the next is
seen at around 5 percent of GDP, well above the European Union's
3 percent ceiling.
Ceska Sporitelna chief economist David Navratil calculated
the central budget gap could hit 190 billion crowns this year,
based on the new forecast, with the total public sector gap at
5.1 percent of GDP.
Czech policymakers, mainly the central bank, have begun to
warn that the swelling fiscal gap and a budgeting system based
on ambitious growth expectations were raising the risk of a
public finance meltdown in the medium term. []
Navratil said gaps around 5 percent per GDP in times of an
economic downturn were tolerable but what was important for the
markets was that the structural deficit, adjusted for changes of
the economic cycle, did not get out of control.
The central bank forecasts the economy to contract by 2.4
percent this year but Vice Governor Miroslav Singer told Reuters
on Tuesday a new outlook due to be released in August is likely
to revise that expectation downwards. []
(Editing by Ruth Pitchford)
