* Czech foreign trade on Oct 7, CPI Oct 9
* Drop in exports,imports slowing, but balance could worsen
* For table with complete forecasts, click on []
By Mirka Krufova and Jana Mlcochova
PRAGUE, Oct 2 (Reuters) - The fall in Czech exports and
imports continued to slow in August, bolstered by the German
'cash for clunkers' scheme which boosted the monthly surplus, a
Reuters poll showed on Friday.
But an end of the subsidy as of September, a pick-up in
import prices, and growing imports of parts and materials could
erode the balance in the fourth quarter, analysts said.
Foreign trade is the main driver of Czech economy, which
plunged by 5.5 percent year-on-year in the second quarter as an
economic crisis hit demand in Europe.
The median forecast in a poll of 14 analyst groups showed
August foreign trade <CZ/ECON04> <CZ/ECON15> would record a 7.1
billion crown ($405.7 million) surplus, from July's 12.25
billion and above 1.5 billion for the month a year ago.
Exports were seen falling 10.7 percent on the year, less
than the 17.9 percent decline in July and roughly the same as
last year.
Imports likely dropped 14 percent after July's 21.3 percent
fall and deeper than last year's 11.4 percent.
"Foreign trade as a whole is still affected by positive
terms of trade, prices of imports fell deeper year on year than
prices of exports, which improves the nominal balance," said
Miroslav Plojhar, an EMEA economist at JP Morgan.
"August and probably also September will still be propped up
by German cash for clunkers scheme."
He said the end of the scheme would have a negative
influence. "On the other hand it seems that German economy is
picking up... which should outweigh the end of the scheme," he
said.
The payment for removing old cars and purchasing new ones
had helped moderate a Czech industrial production tumble in the
past months and its termination is expected to hurt a fragile
recovery.
Volkswagen's <VOWG.DE> Czech unit, Skoda Auto, the largest
Czech company by sales, may shut production for two days in
October after a lack of the subsidy hit demand for its popular
Fabia model in Germany. []
September inflation was seen stagnating year on year and
dropping 0.4 percent on the month. Price growth was subdued
thanks to a drop in prices of holiday packages, a continued
decline in food prices while fuel prices likely fell too, said
Jaromir Sindel, a chief economist in Citibank in Prague.
"As the inflation is likely to be below central bank's
forecast (0.5 percent year on year), the probability of another
cut in the policy rate could increase," Sindel said.
Low inflation and a slump in growth moved the central bank
to cut interest rates to a record low of 1.25 percent in August.
Minutes from the bank's latest meeting last week, when rates
were held, raised analysts' expectations policymakers could
deliver another cut as risks to the bank's inflation forecasts
shifted to the downside. []
(Editing by Toby Chopra)
