Czech economic growth weaker in 2002 but analysts optimistic for 2003
Extremely low inflation, appreciation of the currency, high demand, growing unemployment and trade gap, and unsustainable increase in public finance deficits - that's in a nutshell what the year 2002 was like. More...
After a period of acceleration, the Czech economy was running somewhat short of breath in 2002. One of the main reasons was a strong Czech currency that caused a decrease in foreign demand and a loss of competitiveness of Czech exporters. Other key factors include the catastrophic floods in August and a subsequent drop in income from tourism, coupled with bad economic situation in Czech Republic's key trade partner countries, mainly Germany.
In the third quarter, the Czech economy showed the slowest growth in the last three years - 1.5 percent, but analysts are still optimistic and hope the situation could improve with a global recovery in 2003.
The main risks for future developments include the excessive public finance deficit, further strengthening of the Czech crown, as well as growing oil prices. For the whole of 2002, the economic growth is expected to exceed 2 percent, as compared to 3.3 percent in 2001.
The Czech trade gap has been growing to record highs, influencing the overall economic performance significantly. On the other hand, the Czech economy was aided by a strong consumption, including both household consumption and government spending. This was due to a combination of a considerable increase in real wages and a growing accessibility of consumer loans. The government has been borrowing massively as well and the government debt has shown the steepest growth in history.
Real wage growth ran out of proportion with that of labour productivity, and experts have warned this combination would raise unemployment. According to some predictions, the Czech jobless rate might top 10 percent for the first time ever at the beginning of 2003.
Czech inflation has been record-low for eight months in a row. The year-on-year consumer price growth of 0.5 percent registered in November was the slowest since the Czech Republic emerged as an independent country in 1993.
The Czech inflation rate is one of the lowest throughout continental Europe, and some analysts say that the disinflation trend may eventually lead to deflation.
A positive factor was the inflow of foreign investment, growing to a record-high 7.5 billion dollars in the first three quarters of the year, with most of the investment coming from the EU. The Czech Republic remains the leader in per capita direct investment in Central and Eastern Europe.
