Since the mission last visited the Czech Republic in October 2000, the economic expansion has gained a broader footing, and indications for 2001 remain positive, especially from the side of investment. In the short term, however, the global economy, to which the Czech Republic is very exposed, is experiencing a slowdown, and depending on the extent of this deceleration, the growth prospects for the region could be subdued. Adjusting to this external slowdown will require prudent economic policies in the coming period.
Inflation is under control, and there is no near-term threat to price stability.
Hence, the mission considers that monetary policy can maintain its current accommodative stance without jeopardizing price stability, while allowing private domestic demand to gather momentum. However, the main and overwhelming concern is the deterioration in public finances. The longer-term risks of widening fiscal deficits are obvious to all. The mission therefore urges the authorities to embark on an immediate, concerted effort to initiate fiscal consolidation, through structural reform measures that have a lasting effect on the fiscal deficit. In this regard, some recent proposals that bear substantial expenditure implications need to be examined particularly carefully.