Business News

In this week’s business news: the Czech central bank predicts a recession; the country’s trade surplus plunged by a quarter in 2008; government unveils plans to boost the economy; Škoda car maker profits from German car subsidies; and Russia’s Aeroflot eyes Czech Airlines.

Czech central bank: country heading for recession

Czech National Bank, photo: Štěpánka Budková

The Czech Republic is heading into a recession. On Thursday, the Czech National Bank radically lowered its forecast for the country’s economic growth to red numbers for the first time, predicting a 0.3 decline. The Bank’s governor, Zdeněk Tůma, called the prospect for this year’s growth a “negative zero”, citing falling exports as the major cause behind the grim outlook. The central bank also slashed interest rates by 0.5 percent on Thursday to a record low of 1.75 percent. The move was expected, given the low level of inflation in the Czech Republic and the gloomy economic prospects for this year.

2008 trade surplus shrinks

The official Czech trade surplus for 2008 shrank by a quarter to 69.4 billion crowns, or 3.2 billion US dollars. The annual surplus dropped due to exports in that year falling by 0.7 percent while imports rose by 0.1 percent. Czech foreign trade traditionally benefits from car and machinery exports but the country’s economy has been heavily hit by the recession in the Eurozone.

Government unveils plans to boost the economy

Miroslav Kalousek and Martin Říman, photo: CTK

The Czech government’s economic advisory board, NERV, unveiled a plan to boost the country’s slowing economy this week. The proposed measures should lower social insurance, accelerate depreciations and make loans more accessible to businesses. Social insurance levels are expected to drop by a fixed amount while faster depreciations – one year instead of the present three years – of machinery, computers and cars should boost demand for new products and motivate companies to invest in these goods. The government will also up capital in several state-owned banks which provide loans to small and middle-sized exporting firms.

The Czech finance minister, Miroslav Kalousek, has also come up with a strategy to keep the restaurant business afloat. He would like to see restaurants transferred to a lower VAT rate, from the current 19 percent to 9. Mr Kalousek said the proposal is not designed to make food and drink in restaurants cheaper but rather to prevent lay-offs in this particular sector of the economy.

Škoda profits from Germany’s car subsidies

The country’s biggest car-maker, Škoda Auto, has recently seen an upturn on the German car market, a crucial destination for its products. Demand for small, compact vehicles dramatically rose in Germany as a result of the government having started providing car subsidies as an incentive to buy. The increase in demand for the Škoda Fabia model made the carmaker re-introduce a five-day working week which should remain in place until March at least.

Russia’s Aeroflot eyes Czech Airlines

Photo: CTK

Russia’s air carrier Aeroflot was the first company to officially enter a tender for Czech Airlines on Thursday. The Czech government is hoping to sell a 91-percent share of the ČSA airliner for some 5 billion crowns, or more than 260 million US dollars. As Aeroflot is not officially based in an EU member state, it can only hope to buy 49 percent of shares. Aeroflot management has already announced its plans for Czech Airlines, saying it would focus on shorter routes. Other companies reportedly interested in buying the Czech carrier include the financial group Odien, and the Icelandic firm Travel Service.