| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| BUSINESS OUTLOOK
Czech Republic: Keeping Fingers Crossed for Recovery Will seven times be the charm? Analysts are hoping that another cut in Czech short-term interest rates, after six cuts by the central bank so far this year, may finally turn the ailing economy around. The Czech economy has been shrinking since late 1997 (chart). In the first quarter, real gross domestic product was down 4.5% from a year ago, and the monthly data suggest a further drop in the second quarter. In particular, consumer spending, which added positively to growth in the fourth quarter of 1998 and the first quarter of 1999, may have slipped in the spring. Industrial production is also weak. In May, total output fell 5.7% from a year ago, with manufacturing alone off a steep 10.1%. And construction was down 7.9% in May. Consumers are reluctant to increase their spending because unemployment remains so high. The jobless rate hit 8.8% in June, the highest level since Czechoslovakia split apart in 1993. Slowing inflation, however, has helped boost household buying power. In part because of the ongoing recession, the yearly inflation rate has plummeted from 13.4% in early 1998, to 2.3% in June. On July 21, the Finance Ministry revised its economic outlook lower. It now expects real GDP to fall 1% this year, worse than the 0.8% originally projected. Private economists, however, are more pessimistic because they do not see as great a pickup in the second half as the government does. Real GDP shrank 2.3% in 1998. Falling interest rates may spur the sagging domestic sector and curb the recent runup in the Czech koruna, which has risen 5% against the euro since March. The strength partly reflects an improvement in trade. The trade balance has swung from a deficit of $16 billion in early 1997 to near balance in May. Now, with inflation under control, the hope is that a weaker currency will bring only good to the economy. Namely, it will make Czech exports more price competitive just as the recovery in the euro zone lifts demand for imports in that region. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Czech Republic: Keeping Fingers Crossed for Recovery CHART: The Czech Recession Worsens INTERACT E-Mail to Business Week Online | |||
