CR Economic and Business News 2006-9 (01.05. – 15.05.2006)
Czech state budget posts Kc 19.9bn deficit in April
According to the FinMin statement, the state budget marked revenues of Kc299.7 billion and spending of Kc319.6 billion, resulting in gap of Kc19.9bn (euro 0.7bn). At end-March 2006 the balance was a Kc15.7bn surplus. Key revenue items: taxes totalling Kc147.3bn (+14.9bn against April 2005), pulled mainly by VAT collection (+10.3bn). Both personal income tax and corporate income tax are expected to fall during 2006 due to the cut in tax rates since January 1, 2006. The biggest spending was on social benefits: on pensions (Kc 93.8bn), subsidies to regions (Kc48.3bn), contributions to building societies (Kc15bn) and advance payments to the education sector and to the state-run General Health Insurance Company. Analysts say the budget expenditures were higher than planned, the revenues kept the economic growth on an acceptable level. Only non-productive expenditures are growing excessively. Conclusion: Even when the budget gap was below the level of the same period of 2005, without extraordinary measures on the side of expenditures the deficit for the full 2006 will probably be worse than in 2005. (HN 02.05.06)
Vitkovice takes control of Argentinian company Cidegas
As the Vitkovice Holding (VH) management announced the company bought 68% in the Cidegas, one of Argentina´s four pressure cylinders producers. Argentina (and Brazil) are world leaders in the use of natural gas and hydrogen as car fuels. VH will invest into Cidegas technology and raise its production capacity in order to extend its share on the market. The price of the stake has not been disclosed. (MfD 02.05.06)
Paroubek asks Putin for lower price of gas for power production
According to the recent statement of the Ministry of Environment (Depty Minister P. Petrzilek), Czech PM J. Paroubek asked in a letter Russian President Vladimir Putin to separate the price of natural gas that would be used for electricity production in the CR. This gas should be 20% cheaper than gas used for other purposes. This possibility was discussed during Putin´s March visit to Prague. If an agreement is reached on prices, it would not be necessary to complete more units of nuclear power station Temelin. If not, Temelin´s completion will be needed. The government energy policies also consider construction of a new nuclear power station. Unlike the Green Party, Social Democrats, the senior party of now ruling coalition, admit a further development of nuclear energy. This item also appears in their environmental election programme. (LN 04.05.06)
COFACE issues a new bankruptcy study on CEE countries
Coface Central Europe Holding AG based in Viena (a branch of French Coface group, a leading European business information and debt management company) prepared a new analysis on the threats of bankruptcy proceedings in 11 CEE countries in 2003-2005. The average insolvency rate of the group was 0.61% in 2005, against 0.41% in 2004. The differences in insolvency rate of companies in individual countries are huge, but they reflect – apart of the economic situation of firms – also the level of bankruptcy law in these countries. The total number of insolvencies did not change much in the 3 years in question, with an increase in 2005 after a decline in 2004. The lowest insolvency rate was in Poland (0.02%), the CR had 0.26%. An improvement was reported especially in Croatia, Slovenia, Latvia and CR, while Romania and Slovakia showed a worsening. (CTK 05.05.06)
CR to get most EU money for transport infrastructure in 2007 - 2013
CR will get from EU SF and CF in 2007-2013 overall EUR25.9bn. The highest share of this money (EUR5.7bn-22%) will most likely go for the development of transport according to the document of Local Development Ministry. Czech transport infrastructure is obsolete and is limiting incorporation of several regions to the EU market. Second highest share belongs to the environmental protection (EUR5.2bn-20%), followed by regional development (EUR3.4bn-13%), development of business activities and innovations (EUR3.1bn-12%), RandD (EUR1.5bn-5.8%). Despite the fact the transport and environmental protection will have 42%, the share of other 3 areas (industry and business activities, human resources and regional development) has been also raised considerably. The highest growth has been in development of industry and business activities whose share will now be 18% (against 11.7% during 2004-2006). (HN 08.05.06)
US companies Goodyear and CTS to build plants in northern Moravia
Goodyear will produce car and industrial hoses. Trial operation will be launched by the end of May, full capacity would be achieved by the end of 2006. Investment in technology will reach some Euro2mil.
CTS wants to produce position sensors for pedals and engines in passenger cars. An assembly facility is to be constructed later on and the design facility should be created in Ostrava.
Both companies will situate their facilities in the industrial park in Ostrava-Hrabova. The Northern Moravia region is attractive for investors namely given the planned investment of Hyundai and KIA car plants situated not far from here, as well as the new TPCA plant in Central Bohemia. (CzechInvest 09.05.06)
Czech support to euro in decline
According to the recent poll of the CVVM agency, some 45% of Czechs agree the country should join the euro zone, while 43% are against. Compared with the past, the results show the share of euro opponents has been growing steadily, while the share of euro "advocates" has been falling. The share of respondents with "no opinion" to the issue remains unchanged since 2003. The euro had the strongest support in October 2003 when 58% said "yes" to the euro adoption. At present, CR plans to introduce the euro in 2010, which means to join the ERM II system with the crown pegged to the euro in a set band for 2 years, already in mid-2007. However, experts predict the CR will join the euro zone only in 2012-2013. The decision should be taken by the new cabinet by the end of 2006. (Czech Statistical Office 10.05.06)
CR´s competitiveness improves
According to the study made by the International Institute for Management Development IMD) in Lausanne the CR took up the 31st position out of the 61 monitored countries in 2005. From among the post-communist CEE countries, only Estonia is better off as it took up the 20th place. Slovakia improved to the 39th place. The chart of countries is topped by the USA, followed by Hong Kong and Singapore. CR is applauded for economic growth, conditions created for investors, low interest rates, social peace and criticised for the low flexible on labour market, and in particular social and health insurance. (HN 11.05.06)
Czech foreign trade in surplus in March
The surplus amounted to Kc9bn (euro 315 million). January-March 2006 surplus totalled
Kc27.3 billion (euro 960million). According to the Czech Deputy Minister of Industry and Trade M.Tlapa this year the foreign trade could show a surplus of Kc80bn (euro 2.8 billion). The improvement was achieved mainly thanks to the "traditional" exports of machinery and transport equipment. The EU share on Czech exports declined slowly (from 86% to 84.2%) in the first trimestre 2006, the new markets increased their share, namely CIS (+35%), China (+12%) and Balkan states. Overall exports rose by 19.5% and imports by 19.3% y-o-y in current prices. Growth was faster in euros than in USD (appreciation against euro).
(CSO 10.05.06)
Textile imports from China cut sales in Czech textile firms
The lifting of barriers on Asian textile imports to the EU in force since January 2005 affected Czech textile sector causing sales fall during the last year. According to the survey published by the TextilZurnal magazine and the Association of Czech textile industries the sales during 2005 decreased in 22 out of 34 largest Czech textile companies and only 12 domestic producers showed an increase in their sales. The situation is better in the clothing industry where 11 out of 19 biggest firms managed to maintain or raise sales in 2005.
Textile imports from China to the CR rose by 28.5% and imports of clothing added 38% according to the Czech statistics. Owing to this situation, many Czech firms have reduced production or had to close down as they lost markets for their products. Chinese textile exports to the EU grew 130% only on the first half 2005. Finally, an agreement on introducing quotas on (selected) imports of Chinese textiles has been reached in June 2005. The quotas, valid until 2008, will reduce the growth of Chinese products to 8-12.5% a year. (TextilZurnal 12.05.06)
Prague bourse sees steepest fall since October 2005
Prices of shares traded on the Prague bourse suddenly fell, including the "blue chips" titles such as power utility CEZ (-3.7%), Unipetrol (-4.4%) as a result of foreign investor´s "departure" from the region. The bourse has been hit by the sell-offs (withdrawals) of money. Owing to the general situation on the world markets, analysts forecast more withdrawals will follow and the re-composition of the market will be much longer than usually is. (HN 15.05.06)
Prague, May 23, 2006