20-11-2003

Ruling coalition leaders agree on pension reform principles

Leaders of the three ruling parties agreed this week on pension reform principles based on the Swedish model. According to preliminary information, the new system should guarantee a certain minimum pension to everyone, on top of which there would be a flexible amount depending on the person's previous earnings, and additional, voluntary pension insurance policies.

The reform should be ready for implementation by mid-2005 and the new system is to be gradually introduced over a period of 20 years. Prime Minister Vladimir Spidla said the aim is to have the system fully working when the strong population years from the 1970s will be retiring and the weak years from the end of last century and beginning of this century will be economically productive.

Czech retail sales boom

Czech retail sales advanced at the fastest annual rate in three and a half years in September. Retail sales accelerated to 9.4 percent year-on-year after a 5.9 percent rise in August. The data reinforced the view of some central bank monetary policy makers that a further rate cut could be damaging because it could spur consumption and, in turn, inflation.

Consumer spending has propelled the economy in recent quarters as businesses struggled with a global slowdown and recession in neighbouring Germany, their biggest export market. Almost zero inflation and about seven percent nominal wage growth have helped Czech households spend more money. The record low costs of credit - at two percent the lowest in central Europe and on a par with euro zone levels - have added further fuel to the consumer boom.

Economists believe the consumption and economic expansion will accelerate before Christmas, which prompted analysts to raise their outlook for GDP growth in the third quarter to up to 3 percent.

Czech producer prices jump with introduction of winter power tariffs

Czech producer prices jumped 0.6 percent month-on-month in October, and fell 0.1 percent year-on-year. The rise was mainly due to a 5.3-percent rise in electricity prices for large customers after power producers switched to the higher winter tariffs. Prices paid at factory, refinery and utility gates are a leading indicator for consumer inflation, targeted by the central bank. They have not risen for 21 months in year-on-year terms.

Central European states expected to join euro from 2009

Photo: European CommissionPhoto: European Commission Most of Central Europe's largest economies probably won't join the euro zone until 2009 as they need time to bring down bloated budget deficits, according to a poll conducted by the Reuters news agency. Poland, Hungary, Slovakia and the Czech Republic, along with four other ex-communist countries and the Mediterranean islands Cyprus and Malta, are committed to eventually joining the European monetary union after entering the European Union in May 2004. Analysts mostly predict that Poland, Hungary and Slovakia will join the monetary union in 2009, whereas the Czech Republic is expected to join in 2010.

In order to adopt the single currency, countries must bring down inflation rates, reduce budget deficits and bring their economies into line with those already in the wealthy euro zone bloc.

The survey showed that Hungary and the Czech Republic will not meet EU rules for EMU entry which specify a budget deficit threshold of three percent of GDP until 2007, while Poland would not be ready until 2008. However, analysts expect Slovakia to manage it two years earlier, in 2006.

Czech Telecom warns of 2003 loss, cuts jobs

The dominant Czech telecommunications operator Czech Telecom said it could slip into a loss this year unless regulators allow it to hike fees charged to its fixed-line clients.

The company also announced plans to cut around 4,000 jobs by the end of 2005, mostly at its fixed-line business, to end up with a total staff of 9,500 including at mobile unit Eurotel.

Chief Financial Officer Juraj Sedivy said that without a price hike, the state-controlled former monopoly would be forced to write off part of its massive investment in fixed-line infrastructure. Under international accounting standards, a company must write off an investment that does not bring sufficient revenue.

The warning comes at a time when Telecom, which is slated for privatisation, is to submit a proposal to the market regulator on prices it wants to charge its 3.6 million customers next year.

Analysts say it will be important to watch what Telecom eventually achieves by pressing on the regulator, because a loss-making company does not appeal to investors and the state would not get much in the privatisation.

TDC quits Radiokomunikace, keeps fixed-line unit

The Danish telecoms company TDC said it was pulling out of Czech operator Ceske Radiokomunikace, leaving Deutsche Bank the sole majority owner. TDC earlier this year raised its stake in loss-making fixed-line operator Contactel, formerly a subsidiary of Radiokiomunikace, to 100 percent from 60 percent and said it would keep it.

Radiokomunikace's remaining core business is data and TV signal transmission, but its most valuable asset is a 39-percent stake in the Czech unit of German mobile operator T-Mobile.

Half of Czech travel agents may go under in 2004

The number of Czech travel agencies may drop by about a half next year from the current more than 1,000. According to daily Lidove noviny, travel agents have difficulties obtaining a mandatory insurance policy against bankruptcy. Only about five insurers said they would offer the mandatory insurance and their financial capacities will suffice to insure only about half of the Czech travel agencies. Besides, insurers are planning to tighten the conditions for bankruptcy insurance. Travel agencies that will be unable to find an insurer can seek other ways of providing for financial difficulties, such as bank guarantees, but these are subject to more stringent regulation and are more costly.

A 1999 law made insurance against bankruptcy obligatory for travel agencies. Nevertheless, a certain number of Czech tourists find themselves abandoned in foreign countries every year. This year, at least four Czech travel agencies filed for bankruptcy.

20-11-2003