Czech economy riding high

04-04-2006

The past few months have seen very positive economic news coming out of the Czech Republic. Not long ago, Radio Prague told you about record growth of GDP. Recently, the rating agency Moody's improved its A1 OUTLOOK of foreign and domestic currency ratings from stable to positive. Also, the Czech crown has strengthened against both the dollar and the euro recently while state debt has remained low and the trade balance ran a high surplus.

International investor services company Moody's upgraded its outlook for the Czech Republic's A1 foreign and domestic currency ratings from stable to positive last week, which they said was a reflection of the country's improving macroeconomic numbers, where we saw record growth in the gross domestic product last year, and efforts for structural reform.

Now most people don't know what this outlook upgrade means, so I asked Patria Finance's chief economist David Marek to explain what can be a practical result of these changes.

Also, on Monday, the Czech Statistics Office released foreign trade figures for February, which saw a trade surplus of 7.1 billion crowns, or about 308 million dollars. This is under the expectation of 8.5 billion crowns, but still a hearty surplus nonetheless. The lower surplus is largely due to imports of oil and natural gas, which were especially necessary during the long winter.

Now, these pieces of news have caused the Czech crown's value to increase in recent days. I asked David Marek what he expects to be further developments with the crown in coming days and weeks.

"We have to be prepared for the continuing of appreciation of the Czech currency. The main reason lies in strong economic growth and productivity growth, stronger than that in the Eurozone. However, now it seems that the Czech crown's gains are too strong and don't correspond to economic development. So, the trend of appreciation (of the crown) could be less strong in the months to come."

These numbers may seem impressive, but with elections coming up in two months time, all economic numbers will be closely scrutinized for what they can mean in the upcoming elections. However, David Marek said that the key economic issues for voters are elsewhere.

"What is important for elections and for ordinary people is the development of unemployment and development of the average wage in the Czech Republic. One factor is positive: unemployment is falling. (However,) the average wage is not increasing as strongly as it had before. So, the situation is not very clear before the upcoming elections."

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