Thursday, September 04, 2008

Czech Export Growth Remains Lacklustre In July While Imports Fall

Exports from the Czech Republicc roseat  an annual 3.2 percent in July  - reaching  204.1 billion koruna - compared with a 1.7 percent increase in the previous month. Imports totaled 196.8 billion koruna, and were down 0.9 percent on  the year after a 1.1 percent drop in June. The fall in imports is a pretty clear reflection of the slowdown in internal demand, although ironically this will initially be reflected in a slight upward movement in GDP as the net external trade contribution rises slightly.



The export performance was all the weaker taking into account the fact that there were three more working days in July compared with the same month last year. The position hasn't been helped by a dramatic decline in European car sales.German car registrations fell an unadjusted 10.4 percent in August, (there were  two fewer working days), and this was  the third monthly decline this year.  

Elsewhere things were much worse. In Ireland, new sales continued downwards in August, with  August monthly sales figures down by 41.6 per cent on last year. Spanish car sales fell by 41.3 per cent in August, their sharpest decline this year. Data issued by Spanish industry group Anfac showed a fall in showroom traffic across regions as the economy moved close to a recession. Italy's sales fell for the eighth month in a row, down 26.42 percent to 77,156 units, the biggest monthly drop this year, according to government figures. For the first eight months, sales totalled 1,531,598 units, down 12.04 percent.  Car sales in France did better, falling by  7.1 per cent  year on year uncorrected, and rising slightly at 2.2 per cent when adjusted for differences in working days.

In general terms the Czech Republic is beginning to feel the twin  impact of slowing growth in the 15-member euro region - the country's main trading partner - and the appreciation of the koruna, which rose to a record of 22.877 on July 21, and has further weighed on exporters by making Czech goods more expensive abroad.

Trade Surplus Narrows

The Czech Republic's trade surplus narrowed in July from the previous month. Goods flowing out of the country exceeded imports by 7.2 billion koruna ($421 million), compared with a revised 15.3 billion koruna in June and a 1.6 billion-koruna deficit a year ago.

2 comments:

hfilip said...

Edward, even though I normally am as pessimistic as you seem to be, you are a bit too pessimistic here. First and foremost, the July Czech trade balance data were just unbelievably good. Last July, we were minus 1.6 billion. This July, we are plus 7, despite worldwide misery and CZK going through the roof. That is a result way, way better that anything eg Spain could even dream of. Secondly, CZK/EUR is now back at about 25, which is a rate that causes much less concern among the exporters over here (while the drop versus the dollar was even more remarkable). And on top of that, our most unbeloved inflation started to go down (6.5 at the moment), so the rates will likely creep down as well. Which should cause the CZK to go even further down, domestic demand for imported goods likewise and exports up. Hopefully, might I say, as one never knows.

Edward Hugh said...

Hello Hfilip,

"even though I normally am as pessimistic as you seem to be"

Just to be clear, I am NOT pessimistic about the CR. Indeed, of the entire EU 10 it is the one I am the most positive about.

What I am looking at is a typology of economies as populations age and median ages rise. Basically there is a transition from domestic demand driven economies to export driven ones.The CR seems to me to be in the middle of this transition right now.

The CR is slowing, it isn't going to crash. This is different. This is probably going to be the proverbial soft landing.

The whole eurozone (lead by Spain, but now followed by Germany) is slowing very fast, the CR is bound to be affected by this, given the level of interlocking with Germany on trade.

"the July Czech trade balance data were just unbelievably good."

Yep, but be careful, the balance is also about imports, and imports are down year on year, even though oil is right up. This decline in imports is due to weakening internal demand, it is the first signal. Initially you don't notice this, since GDP growth is sustained by the positive net trade component (this is the only way Spain got 0.1% q-o-q growth in Q2 - since imports were right down - otherwise Spain would have entered recession officially as of 1 April).

"Secondly, CZK/EUR is now back at about 25, which is a rate that causes much less concern among the exporters over here (while the drop versus the dollar was even more remarkable). And on top of that, our most unbeloved inflation started to go down "

Yep, and all of this is positive, but it won't stop growth slowing, it will only create a situation where the CR can rebound more rapidly as external demand for its products grows, although with the motor industry component this is going to be hard work for some time to come.

Basically inflation in part will depend on the "tightness" of the labour market. Unemployment is still very low, and the government need to step up external recruitment to maintain capacity levels, otherwise as people retire and less young people come forward there is going to be a problem.