Soaring oil prices to have no dramatic impact on Czech economy

The price of crude oil hit an all-time high on Wednesday when a barrel sold for 100 US dollars. The conflict in Nigeria, low oil reserves in the United States, and a growing demand in China and India appear to be the major factors that pushed the oil price past the milestone many deemed unsurpassable 12 months ago. What impact will the soaring oil prices could have on the Czech economy?

Illustrative photo: archive of Radio Prague

The Czech economy has been growing at an estimated rate of 6.1 percent last year but analysts predict that the growth will slow down in 2008 due to the increasing cost of goods and products in the Czech Republic. Could expensive oil hold up economic growth in the country even more? Tomáš Sedláček, the chief strategist for the ČSOB bank, says no serious setbacks are expected.

“We don’t expect any serious hits at the moment. So far the oil price increase has been gradual and the economy is able to deal with such gradual increases. The only thing that could be harmful for the economy is a sudden shock, as we have witnessed in the past, in the 1970s and then during the Islamic revolution in Iran. That caused the whole world to plunge into a worldwide depression. We don’t see any of that now; we don’t see any depressing signs. The growth is not as strong as it used to be but the world is still pacing forward quite fast.”

One of the factors contributing to the skyrocketing price of oil is the weak US dollar which has been affected by the mortgage crisis in the United States. The Czech crown, on the other hand, has been strengthening against the American currency during most of last year and in December the US dollar sold for less than 18 Czech crowns for the first time in history. Tomas Sedlacek again:

“It is true that the Czech economy is resisting the increasing oil prices by the strengthening crown. This is true for the whole Euro-zone by and large because the euro is strengthening as well. Among the countries hit most by the increased prices is America and other countries that use the US dollar as their major trading currency.”

Rising fuel prices could have a more direct impact on the economy. Michaela Lagronova is the spokeswoman for Benzina, the largest retail fuel seller in the Czech Republic with more that 300 petrol stations. She says petrol prices in the Czech Republic may eventually rise but, the increase will not be dramatic.

“The price of crude oil has been increasing continuously and therefore we have no reason to panic because this is nothing unexpected. For our company, what is crucial is not the price of crude oil itself but the prices of oil products and we will have to wait and see how the price of oil will affect the price of these products. If the price keeps increasing, companies like ours will react. In winter, for example, the price of diesel increased more than the price of petrol. What is then very important is the behaviour of our competition.”