* Finance ministry revises down 2009, 2010 GDP forecasts
* 2009 public sector gap seen at 5.5 percent of GDP
* Budget may have to be reassessed
* For TABLE with forecasts double click on []
(Updates with official forecast, details)
By Jana Mlcochova
PRAGUE, July 22 (Reuters) - The Czech economy will contract
twice as fast this year as previously expected and the fiscal
gap will grow faster as the economy suffers from a drop in
foreign demand, the Finance Ministry said on Wednesday.
The ministry slashed the 2009 gross domestic product (GDP)
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 should see a return to growth of a mere 0.3
percent, weaker than the previous estimate of 0.8 percent, the
ministry's official forecast showed on Wednesday.
The ministry hiked its expectations for the 2009 public
sector deficit to 5.5 percent of GDP from 4.5 percent seen in
April, and the total government debt to 34.5 percent of GDP from
33.9 percent.
The new outlook shows the economy did not hit the bottom in
year-on-year terms in the first quarter, but the ministry said
quarter-on-quarter data for the rest of the year should show
improvements.
"We expect that the economic drop measured quarter on
quarter will stop already in the second half of 2009. The
economy should stabilise on the current low level and a moderate
recovery should take place during 2010," the ministry said.
The gross domestic product in the first three months plunged
by 3.4 percent, a record figure in both year-on-year and
quarter-on-quarter comparison.
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 central bank forecasts the economy will 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. []
FISCAL CONCERNS
The new estimates mean the state budget may have to be
adjusted to account for lower revenues, Finance Minister Eduard
Janota said.
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 overall public sector deficit outlook was revised up by
one percentage point from April to nearly double the European
Union's prescribed 3 percent ceiling.
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.
The government has already doubled its 2009 gross borrowing
target, including replacement of maturing bonds, to around 280
billion crowns.
The bleak fiscal outlook and rising borrowing needs did not
put off investors in Wednesday's 10-year bond auction, which was
the best-bid sale measured by the bid/cover ratio since the
paper was launched in March. []
(Editing by Stephen Nisbet)
