Prague - The export-reliant Czech economy is to contract by 4.3 per cent in 2009 owing to falling foreign demand, according to the Czech Finance Ministry forecast released Wednesday.

The latest forecast is far grimmer than the April prediction which expected the gross domestic product (GDP) to shrink by 2.3 per cent.

The ministry also slashed its forecast for 2010, predicting that the economy will grow by 0.3 per cent next year compared to 0.8 per cent predicted in April.

The budget gap is expected to widen to 5.5 per cent of GDP in 2009 owing to measures designed to curb effects of the global economic crisis, the ministry said.

Such a deficit mars prospects for a speedy switch to the euro as the European Union requires candidates to keep public finance gaps under 3 per cent.

In 2008, the gap was at 1.5 per cent well under the threshold.

The Czech economy, which had boomed in recent years, was spared a direct blow by the meltdown on the global financial markets.

But the drop in demand from western Europe has hurt the export- driven economy, which plunged into recession in the last quarter of 2008. (dpa)