Czech central bank forecasts recession for 2012-13

The Czech central bank on Wednesday slashed its 2012 and 2013 economic forecasts, predicting recessions owing to slides in both foreign and domestic demand amid an austerity drive by the centre-right government.

"This year, gross domestic product (GDP) will drop by 0.3 percent amid markedly restrictive fiscal policies at home," the bank said in reference to measures drawn up by Prime Minister Petr Necas.

The bank, which had previously forecast growth of 0.2 percent this year, now expects "only a gradual revival in foreign demand" for an economy based in large part on auto manufacturing and exports, primarily to the European Union.

The bank warned that the economy probably contracted by 1.0 percent in 2012, compared with its previous estimate of an 0.9-percent slump. Initial official estimates for 2012 GDP are due out next week.

"In 2014, the economy will grow by about two percent," it added.

The Czech finance ministry last week forecast a 1.1-percent contraction for 2012 in the nation of 10.5 million people which has opted to remain outside the eurozone for now.

It predicted 0.1-percent growth for 2013 and a pick-up to 1.4 percent in 2014.