Boston, MA -- (SBWire) -- 03/15/2013 --BMI View: We have altered our forecasts for a possible positive growth in the Czech Republic's construction industry value in 2013 to -2.2 year-on-year (y-o-y) real growth, as we have downgraded our forecasts for the year 2012 to -11.4 y-o-y real growth, this marginal divergence in our estimates is partly due to a revision in our historical data back in 1997, but also since no optimistic plans for the industry were seen and as slow rates remain in the European economic growth. Furthermore, due to strained cash flow, a cap on public spending, a previous freeze on EU funds and the repercussions of a tough financial climate, the risks are weighted to the downside. We expect the market to tentatively enter positive territory from 2014 onwards (we forecast annual average real growth of 3.22% between 2014 and 2022), hopes of a robust recovery remain a distant possibility.
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The factors underpinning our cautious outlook for the sector over the forecast period are:
- In spring 2012 the European Union implemented a freeze to the funds directed towards the Czech Republic, due to government's mismanagement of previous such funds. After an agreement for the auditing of EU funding to be carried out by the Finance Ministry, to the satisfaction of EU authorities, the flow of funding has now been renewed to the Czech Republic.
- On December 20th 2012, the Czech government approved a total of '71 measures aimed to support economic growth in the Czech Republic and increase the country's competitiveness'. As reported by the Czech News Agency the objective of these measures is to seek the reduction of administrative burdens, 'make legislation clearer, boost competitiveness, support innovations, education and the development of export, and make the drawing of subsidies from European funds effective.' Furthermore, in relation to the bleak construction sector the government aims to has implemented a high priority measure towards the simplification of construction laws in order to 'make construction of transport infrastructure cheaper and faster.'
- The first reading of the 2013 draft budget was approved by the Czech cabinet on November 28 2012. The proposed budget was approved by 79 of the 152 lawmakers. The lawmakers supported the government's plan to trim the fiscal deficit by CZK5bn (US$255mn) to CZK100bn (US$5.1bn) in 2013. The proposed budget sets the public finance deficit ceiling at 2.9% of economic output. The plan is part of Prime Minister Petr Necas's target to reduce the deficit to below the 3% limit set by the EU. This vote on divisive austerity measures was the catalyst which would be a make or break situation for the government. If necessary steps were not taken, new elections could see the centre-left coalition come into power - which could potentially open up some more growth-oriented public spending on infrastructure.
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