Business News
Czech GDP growth slowed down in 2002 to 2 %. Rebellious Industry and Trade Minister Jiri Rusnok has been replaced. Czech central banker says there is no need for another interest rate cut. Czech public debt keeps growing. The Czech Constitutional has granted small investors equal rights with the state as a shareholder. Czech retail sales grew 4.4 percent year-on-year in January, outstripping analysts' forecasts. The Czech Republic must pay Bermuda-based TV company CME more than 350 million US dollars in damages for failing to protect its investment. Producer prices have risen more than expected, inflationary pressure remains low. The Czech National Bank has withdrawn the banking licence of troubled small lender Union Banka.
Economic Growth In 2002 Driven By Final Consumption
Rebellious trade minister replaced
Prime Minister Vladimir Spidla has replaced Industry and Trade Minister Jiri Rusnok with MP Milan Urban. Jiri Rusnok, believed to be the only true economist in the government, was sacked because he had broken ranks with the cabinet in last month's presidential election, helping the right-wing Vaclav Klaus to become elected president. Mr. Urban, who is 44, was formerly leader of Social Democrat MPs in the Lower House. His biggest tasks will be to help ensure the privatisation of industrial concerns such as chemicals group Unipetrol and dominant power producer CEZ. The government is looking to sell the state's 63 percent stake in Unipetrol this year, while CEZ is more likely to be sold off in 2004 or 2005.
Czech central banker says no need for interest rate cut
Czech central bank Vice-Governor Ludek Niedermayer said on Monday interest rates were fine and that he felt no need to continue easing despite the current deflation. He said that financial markets might have gotten too far ahead in expecting another rate cut. Instead, he advised investors to start focusing on when the central bank would have to raise rates for the first time since July 2001 to keep inflation on the desired path into 2004, when its most recent prediction envisages a pick-up in price growth to 2.0-3.4 percent in mid-2004. Niedermayer did not rule out a further rate cut entirely but largely played down its likelihood. He said such a move would be conditioned on a "drastic" interest rate cut by the European Central Bank or a major improvement in the inflation outlook for at least one year ahead. Since January 2002, the central bank lowered key two-week repo rate to an all-time low of 2.50 percent, level with the ECB's main rate.
Central Bank withdraws Union Bank's licence
The Czech National Bank has decided to withdraw the banking licence of troubled small lender Union Banka. Both the Central Bank and Union Banka failed to comment on the issue. Union Banka, controlled by Italian private group Invesmart, closed branches and ceased transactions due to liquidity problems on February 21.
Czech public debt keeps growing
Overall debt owed by the Czech Republic's central government rose by 15 percent year-on-year to more than 13 billion USD by the end of 2002. The Finance Ministry said the state's debt equals over 17 percent of last year's estimated gross domestic product. Government debt has risen steadily over the past years due to a ballooning state budget deficit, but still remains well below dangerous levels. Overall public debt, including various public agencies and municipalities, had been earlier estimated at 20 percent of GDP for last year, well below the 60 percent threshold set by the Maastricht criteria for joining the euro currency, a step the Czech Republic is likely to take between 2007 and 2010. The International Monetary Fund, the EU and private economists have however warned it is the rapid pace of debt build-up that is worrying and that swift overhaul of public finances is needed to avoid economic instability in the future.
Constitutional court makes minority shares buyout obligatory in privatisation cases
The Czech Constitutional has granted small investors equal rights with the state as a shareholder by removing a controversial article from the commercial code. The law stipulates that an investor who acquires a controlling stake in a company must offer a buyout to minority shareholders. However, this did not apply to privatisation of state-owned companies. The abolition of this exemption could greatly increase takeover costs and threatens government revenues by making state assets less appealing. The decision comes as the government prepares to sell a 63 percent stake in leading chemical group Unipetrol this year. Unipetrol shares soared on the news, which gives hope to minority shareholders that they will receive a lucrative buyout offer shortly after the privatisation. The controversial exemption would in any case have disappeared from Czech law once the country joined the European Union, in May 2004. Besides Unipetrol, the government plans to sell majority stakes in power utility CEZ and the national telecommunications operator Czech Telecom, but it is unlikely that will happen before Czech EU entry.
Czech retail sales keep growing
Czech retail sales grew 4.4 percent year-on-year in January, outstripping analysts' forecasts as spending rose across all main sectors. The Czech Statistics Office said spending kept up pace after rising a revised 4.6 percent in December, driven by January clearance sales of a wide range of consumer goods. Analysts had predicted a less than 3 percent increase in January. Czech consumers have enjoyed rapid wage growth and been lured to shops by historically the lowest costs of borrowing and price deflation, helping prop up the economy affected by weak demand in west Europe.
Czechs to pay over USD 350 million to TV company CME for failing to protect its investment
An international court of arbitration ruled at the end of last week that the Czech Republic must pay Bermuda-based TV company CME more than 350 million US dollars in damages for failing to protect its investment into Czech TV station Nova in the late 1990s, and thus violated an international investment protection treaty. The Czech government has begun talks with CME on how to pay the damages. Finance ministry representatives said that the Czech government would probably issue state bonds to raise the money if it fails to overturn the ruling and if CME disagrees with other ways of settling the debt. The Czech state budget is running a record high deficit this year and although the arbitration has been going on for several years, the government had made no provisions for the possibility of losing the dispute.
Producer prices rise more than expected, inflationary pressure remains low
Czech producer prices rose a monthly 0.4 percent in February on higher fuel costs, beating analysts' forecasts, but overall price pressures remained benign. The Czech Statistics Office said in a statement on Friday prices charged in industry, as measured by the producer price index (PPI), dropped 0.7 percent year-on-year, extending their decline into a thirteenth consecutive month. Analysts had predicted a slightly lower monthly rise and a marginally bigger annual decline in February. The prices of crude oil refinery products jumped 5.2 percent month-on-month in February, shadowing global markets, while prices in the food and beverage sector rose for the first time in nine months.
