Growth Czeched

By bne IntelliNews February 9, 2009

Nicholas Watson in Prague -

The Czech Republic was touted by many as having one of the most resilient economies in Central and Eastern Europe. So it should be doubly depressing if, as some are forecasting, GDP data this week shows that the country's economy didn't grow at all or even shrank during the fourth quarter.

The Czech central bank said on February 5, the same day it cut interest rates by 50 basis points to their lowest level since 2005, that it now expects the economy to contract by 0.3% in 2009 before edging up to just below 1.0% in 2010. Previous estimates put growth at 2.9% and 3.1%.

But even this could be optimistic. On February 8, the governor of the central bank, Zdenek Tuma, conceded that the bank's next forecast could predict a greater GDP contraction than 0.3%. "Whether our next prognosis is above the current one or below it as for the GDP growth, I would personally say that if there is some difference then it will rather be negative," Tuma said in a Czech television debate reported by Reuters.

The fourth-quarter data will be a first look at how fast the economy is slowing from the 4.2% annual growth that was reported in the third quarter. The consensus is for 1.4% growth, though many economists are leaning toward no growth at all in the quarter. "In our view, the economy will shrink far more than the [central bank] assumes, by 1.6% this year," say Societe Generale analysts in a note. "Already, next week's fourth-quarter GDP report may prove that the central bank forecast is too optimistic at a GDP growth rate around 2.0% on year for the fourth quarter."

Edward Hugh, an emerging market economist, is also in the pessimistic camp. "I think the Czech economy is very near to its first quarter of contraction, indeed we may even have seen contraction in the fourth quarter. If we didn't, it will be a very close call, since not only has the trade impact been negative, and industrial output dropped like a stone, but domestic consumer demand - as reflected in retail sales - also seems to have been falling," Hugh writes on his blog.

The problem is the country's heavy reliance on the car industry and machinery manufacturing, which is seeing a collapse in demand as the country's most important trading partners in Western Europe veer into recession. Czech industrial production fell off a cliff in November, dropping by 17.4% on year. This followed a decline of 7.6% in October.

The total volume of exports also fell sharply in December, down 13.4% on year, while imports dropped 8.2% on year. "Compared with November, there has been another significant deterioration; when adjusted by two extra working days, exports fell almost 20% year on year," says Jan Vejmelek, an economist with Komercni Banka.

This meant that for the third month in a row, the Czech Republic recorded a trade deficit in December. The deficit for the month came in at CZK11.8bn (€423m), which represents a year-on-year drop of CZK9.0bn. "The figures show that the Czech economy is really in a recession stage of the business cycle... which unambiguously confirms that the recession in the Eurozone fully translated into the Czech economy in the fourth quarter," says Vejmelek.

Send comments to The Editor

Related Articles

UK demands for EU reform provoke fury in Visegrad

bne IntelliNews - The Visegrad states raised a chorus of objection on November 10 as the UK prime minister demanded his country's welfare system be allowed to discriminate between EU citizens. The ... more

Czech food producer Hame seen next on the menu for Chinese giant

bne IntelliNews - Following a smorgasbord of acquisitions in late summer, China Energy Company Limited (CEFC) is eyeing yet another small Czech purchase, with food ... more

INTERVIEW: Babis slams coalition partners, but Czech govt seems safe for now

Benjamin Cunningham in Prague - Even as the Czech governing coalition remains in place and broadly popular, tensions between Prime Minister Bohuslav Sobotka and Finance Minister Andrej Babis remain ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.