(Adds analyst, central bank comment, updates prices)
By Jan Lopatka
PRAGUE, March 7 (Reuters) - The Czech economy expanded by
6.6 percent year-on-year in the fourth quarter of 2007, less
than previously reported but still a strong result reflecting
the country's convergence with richer western Europe.
The statistics office said on Friday growth was
broadly-based, with contributions from household and government
spending as well as investments and foreign trade. It had
previously reported a 6.9 percent fourth-quarter rise.
A mild cooling of household demand and the prospect of
slower expansion this year supported the view that the central
bank may refrain from further interest rate hikes.
Full-year growth reached record 6.5 percent, slightly below
the previously reported 6.6 percent.
This puts the Czech Republic behind regional star Slovakia,
which expanded by 14.3 percent, but ahead of Poland and
struggling Hungary.
The stats office said the fourth-quarter result was boosted
by health spending, ahead of a government reform of the system
in January, and by higher-than-usual volume of road repair
works.
"The economic expansion is based on healthy fundamentals,"
said Pavel Sobisek, chief analyst at UniCredit Bank.
"This view is supported by good external balance of the
economy: few comparable countries can boast so low a current
account deficit (of 2.5 percent/GDP)."
The central bank said Q4 growth was 0.9 percentage points
above its forecast, although the slowdown in
household demand was in line.
The statistics office said overall demand contributed 2.6
percentage points to the growth figure, while foreign trade and
capital formation added 2.0 percentage points each.
SHIFT TO LOWER GEAR
Economists forecast a growth slowdown to 4-5 percent this
year due to a strong currency, weaker foreign demand and cooling
of household spending triggered by belt-tightening government
reforms and an inflation rise which bites into real wage growth.
"All in all, we expect that the downside risks to the
economy's outlook to prevail," said Jaromir Sindel, chief
economist at Citibank in Prague.
"A stronger Czech crown, which has decreased import price
growth, could curb inflation pressures. We do not expect a
further rise in the Czech National Bank's policy rates."
Some analysts however expect the bank to add another 25
basis point hike to a series of tightening steps that had
brought the key two-week repo rate to 3.75 percent last month as
inflation jumped to 7.5 percent year-on-year in January.
The central bank says the price jump is a one-off, caused by
government reforms as well as food and oil price shocks, and
that inflation will fall back to its target of 3 percent, +/- 1
percentage point, within a year.
The crown has been the main anti-inflationary factor, having
gained 10.4 percent against the euro over the past 12 months. It
traded at 25.18 at 1230 GMT, half a percent down on the day.
(For a TABLE with GDP data, click on [] or
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(Reporting by Jan Lopatka, editing by Mike Peacock)
