(Adds analysts, details)
By Jan Lopatka
PRAGUE, Sept 10 (Reuters) - The Czech Republic's economy
expanded a touch faster than previously thought in the first
half as exports held up but the overall trend remained poor,
pointing to chances of an interest rate cut by the year end.
Czech Statistical Bureau data on Wednesday showed the
central European country's gross domestic product (GDP) grew by
4.6 percent year-on-year in the second quarter, above an August
flash estimate of 4.5 percent but still the weakest since 2004.
The bureau also raised its first-quarter growth figure to
5.4 percent from 5.1 percent.
The Czech expansion lagged neighbours Slovakia and Poland,
which have also seen a slowdown and are likely to face further
weakness due to faltering demand in the struggling western
economies which take most of their manufacturing output.
The euro zone economy contracted for the first time on a
quarterly basis and rose just 1.4 percent year-on-year in the
April-June period, raising fears of a recession, which would
also hurt the catch-up economies in the east [].
Exports were the main Czech growth driver in the second
quarter, a mixed blessing for the future given the expected
further weakness in Europe's core economies.
A sharp slowdown in inventories, which held back the second
quarter GDP figure, already pointed to the risk.
"It seems that companies have completed a number of orders
but are not readying for new ones to the same extent, so they
are curbing the purchase of raw materials and semi-finished
goods," said Pavel Sobisek, chief economist at UniCredit in
Prague.
"Foreign demand is apparently weakening. The cumulation of
negative factors may mean that economic growth will slow down as
much as to 2 percent year-on-year in the final quarter."
Net exports added 4.0 percentage points and domestic demand
added 1.9 percentage points to the overall growth figure in the
second quarter, while capital formation detracted 1.3 percentage
points due to the inventory slowdown.
Separate figures showed July seasonally and working-day
adjusted industrial output edged up just 1.6 percent
year-on-year, signalling weaker growth.
RATE CUT AHEAD
Analysts said expectations of further cooling kept open the
chances for another reduction in interest rates, following a 25
basis point cut in August to 3.5 percent which was partially
inspired by the record strength of the crown currency.
"The slowing economy plays into another cut in interest
rates," said Helena Horska, an analyst at Raiffeisenbank. "By
the end of the year we expect one more cut to 3.25 percent."
The crown, on a weak footing since recording all-time highs
in July, weakened to 24.83 to the euro after the figures from
24.750 ahead of the data, following other regional currencies
down.
The crown has dropped from an all-time high of 22.925 in
July, a peak that prompted cries from businesses that they were
losing competitiveness.
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(Reporting by Jan Lopatka; Editing by Ruth Pitchford)
