Czech Leader Revises '93 Growth Forecasts

PRAGUE -- Prime Minister Vaclav Klaus has backed off earlier forecasts of economic growth for 1993, saying Czech gross domestic product for the year could show a decline of as much as 1 percent.

Answering journalists' questions on Czech television Sunday, Klaus said the contraction in output should be attributed to the immediate shock after Czechoslovakia was split into separate Czech and Slovak states last January.

"I cannot exactly say if (1993 GDP) will be around zero, or if it will be minus 0.75 percent, or minus 1 percent, or plus 0.25 percent," Klaus said. "None of us expected the first quarter to be such a striking drop."

Czech GDP fell 2.2 percent in the first quarter compared to the same period in 1992. GDP recovered in the second quarter to show 1.1 percent growth, but then fell 1.5 percent in the third quarter, according to the Czech Statistical Bureau.

As late as November, the government was holding to its forecast of growth of 0.5 to 0.9 percent for the year.

Klaus, an economist who has been hailed by many as a champion of market reforms in Eastern Europe, said that the drop in GDP was a healthy evolution in the transformation from the former Communist economy.

"This economy had to squeeze out the activity which belonged to a different world," he said.

"To think that a drop in these macro numbers is something bad ... no, it's healthy. It's just a matter of making it (end) as quickly as possible."

The Czechoslovak economy hit bottom in 1991 when GDP fell 14.2 percent for the year, but then recovered to show a decline of 7.1 percent in 1992.

Although the Czech Republic has lost many of its former primary markets in Slovakia and the defunct Communist bloc, exporters have made a rapid transition to other trading partners.

Through November, the Czechs showed a positive trade balance of some 8 billion crowns ($271 million) for the year, with exports to countries other than Slovakia growing more than 17 percent for the period, while imports grew nearly 16 percent.

But trade deficits in September, October, and November have had exporters and commentators calling for export subsidies.

Klaus instead suggested that if export supports are needed, they would come through a devaluation of the crown which is fixed daily against a mark/dollar basket.

"We sufficiently support (exports) mainly through the exchange rate," he said.

"Subsidizing exports is a huge illiberal measure. It supports one company over all the others. It has an impact on free-market forces."

Inflation, forecast at 10 percent next year after some 17 percent this year, continues to be a concern but unemployment remains surprisingly low, at 3.34 percent in November, the lowest in Europe.