Market caught by surprise as foreign trade surplus hits record high for June

The Czech Republic posted a foreign trade deficit of 7.8 billion crowns in the first of half of 2004. One year on, economic data released on Monday has shown a dramatic turnaround, with this country now boasting a foreign trade surplus of 38 billion crowns in the first six months of this year. The markets were expecting good news, but the record high figure for the month of June caught analysts by surprise. Brian Kenety has more.

The Czech economy is performing well. Net exports and investment have helped real GDP growth reach a healthy 4.4 percent in the first quarter of this year. Inflation has remained low and, as expected, the central bank at its last board meeting decided to leave interest rates unchanged.

Analysts had been expecting to hear more good news on Monday from the Czech Statistical Office on the state of Czech foreign trade. But the market was surprised to learn that the trade surplus for the month of June had reached 7.5 billion crowns - a record high for that month.

"The market expected a 4 billion crown surplus, so it was almost doubled."

Analyst Tomas Pilar of the Wood and Company brokerage says that the size of the foreign trade surplus for June was unexpected, giving a boost to the already strong Czech currency, the crown. But he says, since the lead up to Czech entry into the European Union in May 2004, there has been a steady improvement in the foreign trade figures.

"If you look at the statistics, data from last year, you can see that the two months before EU entry and also in the rest of last year, the trade balance, dynamics of foreign trade, increased every month by more than 20 percent. Immediately after EU entry it was above 30 percent and then it declined... However, [the Czech Republic] continues to post surpluses so the dynamics of the exports exceeds the dynamics of the imports."

Czech exports are doing well despite a stronger crown and slow economic revival in the EU countries. Exports of computer technology, machinery, and transport equipment account for much of the surplus. However, the majority of such companies are foreign owned. Multinationals are increasingly seeking subcontractors in the Czech Republic and domestic producers are focusing more and more on products with higher value added.

Much of the jump for the month of June, in fact, can be attributed to car sales from a single foreign owned plant that began production in western Bohemia this spring.

Analyst Tomas Pilar again:

"Behind these new exports we can see the new car TPCA factory in Kolin [a joint venture between Toyota of Japan and two French carmakers, Peugeot and Citroen]. And what I see is that for the foreign companies, it is better for them to build new factories in the Czech Republic than to import the products from abroad. So that is why imports are down and we can see there are new factories here that boost exports. So that's why the exports are up and imports have fallen behind."

Economists agree that the favourable June result could signal a further strengthening of the crown, which on Monday reached a five-month high on news of the trade surplus.

"When there is a surplus in foreign trade it is very positive for GDP growth. And we can see that the foreign investor now sees the Czech Republic as a country that is already able to produce surpluses, so they are eyeing the Czech currency as a good investment."