CzechInvest Information Series No. 6
Serial No.: MAC/12/94-6
Date of Issue: December 20, 1994
Domestic Investment and Consumption
Despite the division of the former CSFR on January 1, 1993 into the independent Czech Republic and Slovak Republic, the introduction of a new Czech currency, tax reform and a continuing world recession, the Czech government has continued its impressive macroeconomic development on a number of fronts:
Real GDP grew 3.5% in the first quarter of 1994, and is expected to reach an annual average of at least 2.4% in 1994 and 4.4% in 1995, enhanced by increased domestic and foreign investments and continued export growth.
The average annual 1993 inflation rate of 20.8% reflects the price jump of 8.5% in January 1993 following introduction of the new VAT. By December 1993 inflation was only 10.2% (compared to one year earlier) and 9.3% in May 1994. Monthly inflation rates have consistently dropped since the January leap, reaching 0.5% in May 1994.
Export volume grew 17% in 1993, mainly due to the trade shift away from Slovakia toward the West, and have continued to climb with 3.2% growth in the first five months of 1994. Trade will continue its reorientation toward the European Community, which now accounts for almost 50% of the Czech export market.
Reserves reached the annual target by April 1994 and continue to accumulate. Over $350 million in portfolio equity investment alone went into the newly developed Prague Stock Exchangein 1993, and now reaches $50-$100 million per month. Net capital inflows into the banking system remain high at $200 to $300 million per month.
Inevitably, real output initially fell due to the loss of trade with former Comecon markets. After more than three years of reform, however, there are now clear signs of recovery. Retail sales increased 7.4% in the first quarter 1994 and the construction sector recorded 6.7% growth in June 1994 (compared to one year earlier). Industrial production rose 0.8% in June 1994 (also compared to one year earlier), raising forecasts of the 1994 average to 1%-2%.
Domestic investment and consumption are continuing to increase, with growth of 6.8% and 8%, respectively, and a 17% increase in imports from the West in the first four months of 1994.
Unemployment, at 3.7% for the first quarter of 1994, coupled with a growth in consumer demand also confirm macroeconomic stability.
The government continued to transform domestic enterprises through restitution, privatisation and foreign direct investment.
Financial and economic data
GDP (current prices) US$Bil 31.5 1993
GDP, % change from 1 year ago % 3.5 1st Quarter 1994
Industrial production, % change from 1 % 0.8 June 1994
year ago
Construction output, % change from 1 % 6.7 June 1994
year ago
Retail sales, % change from 1 year ago % 7.4 1st Quarter 1994
State budget balance US$Mil 162.1 1st Half 1994
Unemployment rate % 3.2 November 1994
Number of unemployed '000 166.7 November 1994
Average monthly wage (gross) $ 230 November 1994
Inflation rate - 1992 % 11.1 Jan - Dec 1992
Inflation rate - 1993** % 20.8 Jan - Dec 1993
Inflation rate - 1994 (estimate) % 10.5 (1994 estimate)
Monthly inflation % 0.5 May 1994
Exports* US$Mil 6,594 Jan - June 1994
Imports* US$Mil 2,482 1st Quarter 1994
Foreign trade - export structure*
EC % 47.9 Jan - June 1994
EFTA % 10.7 Jan - June 1994
Transitional economies % 7.4 Jan - June 1994
Developing countries % 7.6 1st Quarter 1994
Trade balance, customs* US$Mil 16 1st Quarter 1994
Trade surplus (year to date) US$Mil 42 May 1994
Gross foreign reserves US$Bil 7.7*** June 1994
Gross foreign debt US$Bil 8.6 January 1994
Debt service (% of goods/service % 11.4 Jan-Dec 1993
exports)
Consumer Prices, % change from 1year % 10.0 1st Quarter 1994
ago
Wholesale Prices, % change from 1 year % 6.1 1st Quarter 1994
ago
Discount rate % 8.0 June 1994
Lombard rate % 10.5 June 1994
Exchange rate (period average) $ 29.93 1st Quarter 1994
*Excluding trade with Slovakia; **8.5% of increase due to introduction of VAT in January 1993;
***Czech National Bank and commercial banks
NOTE: This information is current as of December 1994. Although we have made every effort to
ensure the reliability of our sources, CzechInvest does not assume responsibility for its accuracy.