Czech economy booming despite growing oil prices

09-08-2006

Figures just released by the Czech Statistical Office indicate that in spite of the country's drawn out political crisis and the growing price of oil on world markets the country's economy is booming. The Czech Republic is currently the world's sixth biggest exporter, with the highest export figures in Europe.

Photo: European CommissionPhoto: European Commission The Czech economy is running at full steam - the country exports a full 60 percent of its overall production, the job market is growing and the crown is strengthening. Banks are now trading the euro for 28 crowns and by the end of next year it is expected to sell for under 27. Czech exports to the EU are on a par with those of Poland whose economy is two and a half times bigger. The boom in exports is fuelled primarily by the auto-motive industry, but other traditional exporters are also doing exceptionally well. Economists attribute this to the country's location in the very centre of Europe, its proximity to the rich German market, its cheap labour and investment incentives. Economist Marketa Sichtarova says it gives the country an edge over bigger post-communist rivals close-by:

"I believe that the location of the country is its major advantage because this is something that influences foreign investors to a considerable extent. In this respect we have a major advantage in comparison with, for example, Slovakia. Another big advantage is in the fact that the Czech Republic's infrastructure is better than that of Poland, Hungary or Slovakia. "

There is one fly in the ointment though - the growing price of oil on world markets. A growing economy requires more oil and rising oil prices could in time impede growth. Marketa Sichtarova again:

"Growing oil prices might potentially slow down the country's economic growth because obviously the higher price of oil will increase production costs and thereby de-crease profits, which could lead to lay offs and a drop in economic growth. However that's the theory. In practice the situation is different from that during the last big oil crisis twenty or thirty years ago. The structure of the economy has been changing and the economy is now more fuelled by services than heavy industry which is more dependent on the price of oil. This means that even higher oil prices - reaching, let's say, one hundred dollars per barrel - wouldn't significantly harm the economy."

Marketa SichtarovaMarketa Sichtarova Another potential danger to the country's economy is the drawn out political crisis. Two months after the elections, politicians have been unable to agree on a new government. So far the crown has remained steady - but for how long can this last? Mrs. Sichtarova believes that with its present momentum the economy stands a good chance of weathering the storm:

"Theoretically, if this crisis should last for months, it might result in some loss of foreign investment and of course that could endanger not only the foreign trade balance but also the unemployment rate and economic growth. But I believe that this political crisis will be resolved within one or two months at the latest and in such a case the country's economic growth will most likely not be endangered."

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