End of recession is nigh, report claims

After three years of economic decline, the Czech economy has finally taken a turn for the better. According to data just released by the Czech Statistical Office, the year 2000 saw Czech GDP grow by 3.1 percent. What were the main factors that livened up the economy? And are we really witnessing the definite end of recession? Vladimir Tax spoke to economic analyst, Radomir Jac, from Commerzbank.

Radomir Jac: When we take all the economic statistics that we saw during 2000, it was definitely the end of economic recession. I think that the GDP statistic for the last quarter of 2000 is only very strong confirmation of the trend of recovery in the Czech economy.

Radio Prague: Do the GDP figures come as a surprise?

RJ: The last quarter growth was almost 4 percent year-on-year and it was definitely stronger than expected. So, dynamics of the growth was surprising, in fact, there was some surprise also in the structure of GDP. Last quarter GDP was pulled up mainly by development in inventories and by net exports of services. On the other hand, what was very surprising, was that contribution of consumption was very weak in the last quarter.

RP: What about the Foreign Direct Investment? It is often said to be the main factor behind the development...

RJ: Definitely, during the year 2000, we saw recovery in gross fixed capital creation, it means a recovery in investment activities, and capital creation in Czech economy is a clear result of Foreign Direct Investment inflow. So, this is absolutely true.

RP: Is the massive inflow of FDI sustainable? The vice-governor of the Czech National Bank has recently warned against the development, saying it might be too strong. Does the massive inflow pose any threat for the economy?

RJ: I think that during the next two or three years, we will most likely continue to see very strong inflow of investments into the Czech economy. I would say that so far, these inflows did not have any destabilizing impact on domestic demand or on foreign trade development, although foreign trade deficit widened last year. I do not think that it is any danger at this moment and I hope FDI will continue to help Czech economy rather than create problems in coming years.

RP: Is the GDP growth fast enough for the Czech Republic to catch up with the European Union in a foreseeable future?

RJ: Well, year 2000 GDP in the Czech Republic was growing slightly less than GDP in the EU but I would say that if we compare it to the recent development, Czech GDP last year was definitely a success and some at least small increase in the dynamics of GDP growth is expected for this year, so I think we could keep some optimism about speeding up of GDP and coming up to the level of the European Union.