Bloomberg News

Czech Economy Grows Fastest Since 2007 After Koruna Intervention

February 14, 2014

The Czech economy expanded at the fastest pace in more than six years in the fourth quarter after the central bank intervened to weaken the koruna. The currency gained the most in five months.

Fourth-quarter gross domestic product rose 1.6% from the previous three months after advancing 0.2 percent between July and September, preliminary data published by the Czech Statistics Office showed today. The reading was above the 0.6 percent median estimate in a Bloomberg survey of 13 analysts and was the highest since the third quarter of 2007. GDP increased 0.8 percent from a year earlier.

The European Union’s second-largest post-communist economy is recovering from the longest recession on record as the two-week-old government seeks to spur growth with state spending. The central bank bought about $10 billion of foreign currency in November to weaken the koruna and pledged not to let it “strengthen too much” beyond 27 per euro to ward of the risk of deflation.

The Czech economy “resumed a process of catching up with its more developed neighbors,” Pavel Sobisek, chief economist at UniCredit Bank in Prague, said by e-mail. “Even if there’s later a downward revision of the data, growth is so robust that the overall picture of the Czech economy won’t change. The recession is definitely forgotten and the focus is now on growth and its sustainability.”

Currency Gains

The koruna strengthened 0.7 percent to 27.329 per euro as of 9:45 a.m. in Prague, the biggest intraday gain since Sept. 26.

After cutting the benchmark interest rate to what it calls a “technical zero” of 0.05 percent, the Ceska Narodni Banka is mirroring non-standard policy easing by global monetary authorities from the U.S. Federal Reserve to the Bank of Japan to fulfill its price-stability mandate.

The bank sees the weaker currency stopping households from deferring consumption, helping boost export competitiveness and encouraging more investment by domestic businesses.

Since the November intervention, Czech retail sales have jumped and industrial-output growth has gathered speed, statistics office data show.

Industrial production rose 9.3 percent from a year earlier in December, the highest annual reading since May 2011. Retail sales increased 5.2 percent after growing 6.1 percent in November.

While the Statistics Office didn’t publish a breakdown of the data, economic growth may have been driven by purchases of vehicles as companies probably invested into their car fleets before interventions push prices up, Jan Bures, an economist at CSOB bank, said by e-mail.

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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