Business News

Welcome to another edition of Economics Report. The unemployment rate has reached a record high and analysts predict that the worst is yet to come. More on that in a moment, but first, here is a review of the latest news.

Inflation remains low in December

Czech annual inflation remained low at one percent year-on-year in December. In monthly terms, consumer prices rose by 0.2 percent, driven solely by a 1.2 percent jump in food costs. The Czech National Bank said the figure was 0.1 percentage points lower than it had expected. The results led analysts to predict the central bank would wait several months before a likely hike in interest rates.

Food prices rose mainly on more expensive fruit and vegetables but also as a result of summer drought which hurt grain harvest and raised bread prices. Year-on-year consumer price growth is expected to accelerate at the beginning of 2004. It will be above all influenced by one-off impact of indirect tax changes and growth in regulated prices.

Govt considers another VAT rate hike

Prime Minister Vladimir Spidla
Prime Minister Vladimir Spidla said the centre-left government coalition would consider introducing a third VAT bracket to raise budget revenues. Mr. Spidla told reporters the new rate would be between the preferred five percent rate used for food and other essential items and the standard 22 percent applied for most goods and services. The new tax, which would be introduced from January 2005, would be applied to services such as public transport, theatre tickets and health club services, so far taxed at five percent. He said setting the new rate may be coupled with some lowering of the standard rate of 22 percent. The combined changes should bring 16 billion crowns into the budget next year. The extra revenue would be used to fund tax breaks for families with kids and companies investing into technologies and research. Economists have opposed creating a third tax bracket, arguing that would go against the aim of simplifying the tax code.

Hilton sale becomes largest Czech property deal

The largest property investment deal in the Czech Republic has been concluded with the sale of the Hilton Prague to Ireland's Quinn Group for around 145 million euros. The almost 800-room five-star hotel was sold together with a 200-room Ibis Karlin Hotel. The hotel and an integrated conference centre, which opened in 1991, will continue to be managed by Hilton. Prague is seen as one of the most attractive hotel markets in Central and Eastern Europe with hotel values in the city expected to show significant improvement after the Czech EU accession.

Czech 2003 car sales up y/y but lag neighbours

Czech passenger car sales rose 1.2 percent last year. The Car Importers' Association said new passenger car sales rose to just under 150,000 vehicles in 2003, partially recovering after a 2.9 percent drop in 2002. Car sales, an indicator of consumer confidence, lagged behind other private spending: overall retail sales rose by 5.3 percent between January and October. The growth of car sales in the Czech Republic also lagged behind neighbouring Poland and Hungary.

Skoda, a unit of Volkswagen, remained the undisputed Czech market leader, but its market share dropped to 47.7 percent from 50 percent a year ago. French Renault remained the leading imported brand, followed by Peugeot, Volkswagen and Ford.

Czech mobile phone mania continues

Czech mobile penetration rate reach 94 percent at the end of 2003 from 84 percent at the end of 2002. The figure is one of the world's highest. Data from the three mobile phone operators, Eurotel, T-Mobile Czech Republic and Cesky Mobil, showed that 9.62 million users owned activated phone cards in 2003. In the last quarter, the country's total mobile penetration rose by more than 4 percent thanks to traditionally strong Christmas sales. Eurotel remains a market leader with 4.2 million cards. T-Mobile follows with 3.9 million, and Cesky Mobil, the youngest and smallest mobile operator, is third with 1.5 million clients. The firms did not give any financial details to confirm or deny market speculation that the sector is close to saturation.

Seven bidders for Unipetrol

The Czech government received seven preliminary bids for the state's majority stake in the oil group Unipetrol. The state privatisation agency, the National Property Fund, said a government steering committee is to meet in the coming days and make a short-list. Binding bids for the state's 63 percent stake in the company will be due in the second half of March, and the committee should recommend the winner to the cabinet by the end of the same month.

Unipetrol is the smallest oil processing group in central Europe and comprises of oil refineries, chemicals producers and a petrol station chain. The seven bidders reportedly include Poland's PKN Orlen, Czech-Slovak investment group Penta Finance, Hungarian MOL and Royal Dutch/Shell.

Analysts expect the government to gain about 400 million USD from the sale.