Bloomberg News

Czech GDP Growth Comes to Halt on Euro Debt Woes, Austerity

November 16, 2011

(Updates with quote in third paragraph, markets in eighth.)

Nov. 15 (Bloomberg) -- The Czech economy stagnated in the third quarter for the first time since a 2009 recession as the euro area’s sovereign-debt crisis damped demand for the country’s exports and government budget cuts curbed household spending.

Quarterly gross domestic product slowed from a 0.1 percent advance in the April-June period and compared with a 0.2 percent median forecast in a Bloomberg survey of 10 analysts, the Statistics Office said in a preliminary estimate posted on its website today. GDP rose 1.5 percent from a year ago, the weakest expansion in six quarters and a slowdown from 2.2 percent in the previous three months.

“Given the fact that the ‘bad things’ abroad that are affecting Czech exports started to happen mainly in the fourth quarter, quarterly GDP will probably head to a minus in the final three months of the year,” Michal Brozka, a Raiffeisenbank AS analyst in Prague, said by phone.

Czech economic growth depends on demand for products including Skoda Auto AS vehicles and other car parts from the European Union. The bloc takes about 80 percent of the country’s exports, with Germany accounting for a third. The government’s effort to cut the budget deficit to less than the EU’s limit of 3 percent of GDP by 2013 is limiting domestic demand.

External Trade

“Despite a decrease in foreign demand, external trade remains the only increasing GDP expenditure component,” the statistics office said.

Czech export growth has slowed this year along with industrial output. Exports rose 9.7 percent from a year earlier in the third quarter, after 13.8 percent in the previous three months and compared with a 20.3 percent increase in the January- March period.

Industrial output growth slowed to 2.5 percent in September, from 16.4 percent in January. Retail sales were down 0.5 percent in September, compared with 7.3 percent growth in January.

A weakening of the Czech koruna is easing conditions for Czech exporters as it makes their goods cheaper abroad. The currency has lost 5.5 percent to the euro in the past six months and it’s 2.9 percent weaker compared with the start of the year, according to data compiled by Bloomberg. The koruna lost 0.2 percent to trade at 25.846 against the euro as of 10:09 a.m. in Prague.

The central bank on Nov. 3 cut the 2011 GDP forecast to 2 percent from 2.1 percent, and reduced the 2012 economic growth outlook to 1.2 percent from the previous forecast of 2.2 percent, citing the effects of the euro-area’s sovereign-debt crisis on economies in the common-currency region.

The Ceska Narodni Banka left the benchmark two-week repurchase rate at a record-low 0.75 percent on Nov. 3, the same day the European Central Bank’s lowered its main rate by a quarter-point to 1.25 percent. One Czech policy maker sought a similar rate reduction.

--With assistance from Zoya Shilova in Moscow. Editor: Alan Crosby, Balazs Penz

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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