PRAGUE, Dec 10 (Reuters) - Czech economic growth slowed to 4.2 percent in the third quarter, down from a previously reported 4.7 percent year-on-year and confirming a cooling of the domestic economy suffering from slumping demand in Europe.
The domestic expansion was also held back by the strong crown currency which bit into companies' competitiveness and by an inflation spike that depressed real incomes.
"This was due to a combination of external and domestic factors," the Czech Statistical Bureau said on Wednesday.
"The external factors were mainly the cooling of economies of the main trading partners and the resulting sales complications of export-oriented producers," it said.
The central European country has largely escaped trouble in the financial sector that kicked off recession in the United States and western Europe.
But companies are getting a deep hit from falling demand in European markets where the highly industrialised country ships most of its output.
The statistical bureau said seasonally-adjusted quarter-on-quarter expansion was 0.9 percent, below a flash estimate of 1.0 percent.
The data was dragged down by a drop in the rate of inventory formation, which brought overall capital formation to -2 percent, while foreign trade was still the main contributor to growth.
"The drop in investment is negative information which shows that the corporate sector has been cooling already from the middle of the year and this cooling can deepen," said David Marek, chief economist at Patria Finance.
"I think that thanks to the downward revision the likelihood of a significant cut in interest rates is rising."
Growth which registered 5.7 percent in 2007, is expected to slump next year, with the central bank forecasting 2.9 percent expansion and Deputy Finance Minister Eduard Janota forecasting 2 percent growth as a good scenario [ID:nL970468].
The central bank has been slashing interest rates in light of the slowdown, with the last hefty 75 basis point cut bringing the main repo rate to 2.75 percent last month.
The bank is expected to cut rates further at the next policy meeting on Dec. 17. For TABLE with details of Q3 figures, click on [ID:nLA109612] (Reporting by Jan Lopatka; editing by Stephen Nisbet)