Business News

In Business News this week: the Czech economy is out of recession, but new GDP figures are worse than expected; a draft 2010 budget has been approved, with a whopping deficit of 230 billion crowns; analysts warn that the country’s credit rating may slide if next year’s budget deficit is not cut, and Škoda scales down Fabia production as Germany’s scrap incentive scheme comes to an end.

Czech economy out of recession, but GDP data worse than feared

Photo: Štěpánka Budková

The Czech economy is out of recession, suggests second-quarter GDP data released on Tuesday. The figures were, however, much worse than feared, with output falling by 5.5 percent year-on-year, which is the sharpest drop since records began in 1993. According to the Statistical Office, Czech GDP was actually up by 0.1 percent on the first quarter’s results, less than the preliminary estimate showing an increase of 0.3 percent. The Czech economy contracted markedly at the end of 2008 after a drop in eurozone orders of cars and electronics in particular. Analysts predict that unemployment will continue to rise until the end of the year, but that the Czech economy could now be past the worst.

Draft state budget approved, but measures to cut budget deficit still to be debated

Meanwhile, the Czech interim government has agreed on a draft budget for 2010, which anticipates a record state deficit of 230 billion crowns (13.1 billion USD). Finance Minister Eduard Janota has previously warned that such a giant deficit would prove catastrophic for the Czech economy, and has drafted a set of proposals to cut the debt by up to 70 billion crowns (4 billion USD). Prime Minister Jan Fischer said that the package of cost-cutting measures would be debated by his cabinet next Wednesday. Mr Janota wants to cut government expenditure and raise taxes in certain areas. In the run up to general elections, Mr Janota’s proposals are being greeted with some trepidation by the main Czech political parties.

Analysts warn that without steps to cut deficit, Czech credit rating jeopardised

Analysts reacted to news of the draft budget’s approval with warnings that the Czech Republic’s credibility would be jeopardised if the budget deficit was not cut. Economists polled by the Czech news agency CTK said that the Czech Republic’s credit rating may well be slashed, leading the state to pay more interest on its debts, if the deficit is not reduced from the 230 billion crowns currently predicted. Analysts said, however, that recovery elsewhere in Europe would help the Czech Republic in the coming year. Still, they stressed that failure to cut next year’s deficit would probably result in the Czech crown experiencing a drop in value.

Škoda downscales Fabia production, considering lay-offs

While plans for scrap incentive schemes are just being approved here in the Czech Republic, the initiative encouraging neighbouring Germans to scrap their old car for a new one are over. And Czech carmakers are feeling the pinch. This country’s biggest exporter Škoda Auto has announced that it plans to downscale production of its Fabia model by a third, and, if need be, lay off hundreds of casual workers. According to union chief Jaroslav Povšík, if the downscale in production is just for the short term, then employees can be moved to other operations. Should the lull last longer, he said, then thousands of casual workers and up to 500 full-time employees could lose their jobs next year. Škoda executive Holger Kintscher has confirmed that the company may well need to lay off hundreds of agency employees.

Czech Republic slides down World Bank’s Doing Business ratings

Conditions for firms have slipped in the Czech Republic in the course of the last year, suggests the World Bank’s Doing Business 2010 Report. This year, the Czech Republic ranked 74th in the poll of 183 countries, down eight places from last year’s result. The Czechs were left behind by the three other Visegrad states – Slovakia, Poland and Hungary – as well as their neighbours Germany and Austria. Czech Economic Chamber President Petr Kuzel was positive about the result; he said that, despite the slip in ratings, the report showed that both business starts and investor protection had improved in the Czech Republic which, he said, was of ‘key importance’. The Czech Republic fared worse this year than last in the staff hiring, planning permits and taxes sections of the Doing Business Report.