1 The Czech economy is developing in a consolidated environment
2 Industrial production higher than last year, with a continuing upward trend
5 Agricultural production declines
6 Non-state sector accounts for over 53% of GDP formation as of 30 June
7 Personal consumption share of GDP expenditure increases
9 Public sector consumption falls moderately
10 Investment demand increases
11 Moderate rise in foreign demand
12 Inflation in line with the CNB annual prediction
13 Price growth slows in industry and construction;
moderate acceleration in agricultural producer prices
14 Living costs increase in individual social groups
15 Nominal and real wages increase in most major industries
16 Employment in industrial organisations continues to decline
17 Unemployment rate remains at a very low level
18 Privatisation of state-owned assets continues
19 Higher profits in the enterprise sphere
20 Consolidation in manufacturing organisations
1) In the period from January to September 1994, economic developments in the Czech Republic took place in a relatively consolidated environment. Macroeconomic stabilisation continued, enhancing the development of market conditions in the economy, and, because of the world economic recovery, the external economic environment created a better climate. According to available data, levels of all kinds of demand increased, the most significant being the formation of fixed capital. From the point of view of aggregate demand, it is significant that for the first time since the transformation process started, industrial production also recovered, exceeding the level of the first nine months of last year by 2.0%. A rapid increase in household consumption was matched by dynamic retail sales. In contrast to this, agricultural production continued to decline. The development of specific economic sectors was reflected in GDP development which grew by approximately 2.1% in constant prices according to CSO data. Inflation measured by consumer price growth increased by 7.9% during the nine months from December 1993 and by 10.5% compared to the same period last year. The rise in average nominal wages is 16% over the first nine months, compared to the same period last year, i.e. moving within the upper limit of wage and salary regulations. With respect to restructuring the economy, changes in the labour force structure continued in the labour market. The unemployment rate was 3.2% at the close-September, lower than at the end of 1993.
2) Total industrial production (enterprises with 25 and more employees and an estimate of others) in constant prices recorded an increase of 2.0% in goods production. Industrial development can be characterised as stable with steady elements of recovery due to the fact that, starting March this year, the volume of daily industrial production in constant prices was generally higher than that of previous year. Enterprises can be divided into two groups according to production growth rate: enterprises with up to 25 employees (mostly private) whose production in constant prices was 23.2% higher against the same period last year, and enterprises with 25 and more employees (accounting for approximately 89% of industrial production) whose production fell slightly (0.1%). However, these enterprises also registered some trends of a steady recovery, with growth in production during recent months compared to the same period last year. A positive element in this development was the fact that enterprises with more than 25 employees - where the total volume of goods production in constant prices (99.9%) and total sales in comparable prices (100%) were the same as last year - recorded an increase in exports by 4.6% in comparable prices confirming the competitiveness of domestic products in foreign markets. Exports for the nine months accounted for 25.9% of the total sales of industrial production in constant prices, 24.8% a year ago.
3) Construction output in constant prices rose by 6.0% over nine months this year. The total growth in construction output was particularly accounted for by small firms with up to 25 employees which recorded a total increase of 15.0%, while large firms with 25 and more employees (making up approximately 78.5% of the total output) increased by 3.7%.
4) According to preliminary CSO data, retail trade in constant prices rose by 5.9% as of 30 September 1994 compared to the same period last year. The share of imports of consumer goods in overall retail sales was roughly 17% as of the end of Q3.
5) In agricultural production, the decline of the previous years continued. According to data on the sales of livestock products from primary agricultural production, the decline in livestock production is estimated to be 9 - 11% as of 30 September. Preliminary data on vegetable production shows significant differences from last year.
6) The share of the non-state sector in GDP formation increased from 57.7% in Q2 to 62.0% in Q3. In industry, the non-state sector accounted for 57% of goods production, in construction for 90.2% of construction work, in trade for 87.5% of retail sales, in services for 90% of revenues and in agriculture for 84.5% of gross production (industry's share includes also a material component).
7) According to statistical data, the structure of GDP expenditure in constant prices experienced positive changes, i.e. an increased share of household consumption and fixed capital of the gross domestic product, see the following table. In contrast, the exports share of GDP declined.
8) Household consumption increased by roughly 9% in constant prices. This figure is based on the development in the balance of household monetary incomes and expenditures where total monetary incomes grew by 21.6% against the same period last year, due mostly to a 20.4% rise in wage incomes. The increase in total monetary expenditures by households is estimated at 18.5%, of which 15.8% on goods and services.
9) Public consumption (Government consumption) fell by roughly 8.2%. This decline can be considered the result of a prudent budgetary policy. It followed, however, also from a limited ability to compare the year-to-year data (e.g. health service privatisation). State budget expenditures in the public sector area were directed primarily towards education, defence, security and health service.
10) Investment demand (measured by the volume of work and deliveries) increased by 4.1% as of 30 September 1994. The largest growth in the volume of investments by sectors in the first nine months of 1994 occurred in the sector of banks and savings banks (11.6%), non-financial entrepreneurial sector (9.4%), and a smaller increase was registered in the household sector (3.1%). In contrast to this, the Government sector experienced a decline of 13.4%. According to data on the 1st half of the year, in terms of volume most investments were made in the non-financial entrepreneurial sector (61.3%), the largest part being directed to the manufacturing industry. As for the structure of financial resources for acquiring investments, the non-financial entrepreneurial sector used predominantly its own financial means (65.6%) and credits (24.2%).
11) Foreign demand grew by 1.7% in current prices, the fastest increase registered in exports to EFTA and the EU. Exports to EFTA member-states increased primarily due to a high growth in exports to Switzerland and Finland. In contrast, exports decreased to Slovakia, developing countries and countries with a state trade system. Moderate growth was registered in exports to states of the former USSR. In the structure of exports by groups of goods, the share increased of industrial consumer goods (by 1.9 percentage points) and of fuels, materials and raw materials (by 1.0 percentage point), while the share of machines and transportation means fell by 1.7 percentage points and of foodstuffs by 1.2 percentage points. Of total CR exports, 28.8% was directed to Germany, 15.5% to the SR, 7.9% to Austria, 5.3% to Italy and 3.5% to Russia.
12) Inflation, measured by the change in the consumer price index, increased by 7.9% from the year-beginning to the end-September. An increase of roughly 1.7% was due to changes in centrally regulated prices, so that the average monthly growth in underlying inflation was around 0.7%. The price increase was 10.5% compared to last year; the annual moving average in index terms, 111.9%. The development of inflation was affected primarily by a price increase of 11.2% in foodstuffs (especially meat and meat products) and of 12.4% in services (particularly due to price development in rents, heating, water, sewerage, gas, electricity and bus transport). A more moderate increase was registered in prices of non-food products (4.8%) and catering (7.0%).
13) Industrial producer prices rose by 4.5% as of 30 September compared to end-1993 (by 4.9% from the same period last year). Agricultural producer prices jumped by 15.5% from the same period last year, 16.9% for vegetable products and 14.6% for livestock products; construction work prices grew by 11.5% and prices of materials and products consumed in construction, by 5.8%.
14) The growth in consumer prices entailed an increase in living costs for households of employees, farmers and pensioners of 8.2% , 6.8% and 9.8% respectively, compared to end-1993. Differences between individual groups of households followed particularly from different shares of expenditures on services and foodstuffs.
15) In the first 9 months of 1994, compared to the same period last year, average nominal wages increased in enterprises with more than 25 employees by 14.9% in industry, 13.8% in construction, 14.2% in domestic trade and 15.3% in transport. This development was in line with the main requirement of wage regulation (average wages were allowed, without penalty, to increase by only 15.3% - see the CR Government provision). In industry, growth of average nominal wages (+14.9%) exceeded that of labour productivity (+10.6%), while in construction the situation was different and respective figures were 13.8% and 19.2%. All the above industries recorded a moderate increase in real wages: 4.1% in industry, 3.1% in construction, 3.4% in domestic trade and 4.4% in transport.
16) The trends of previous months continued during Q3, reflecting particularly changes in the size of organisations and the movement of work activities to private business. Employment in organisations with more than 25 employees continued to decline. In industry, employment fell by approximately 5.3%, compared to the same period last year.
17) Following January's increase in the number of registered unemployed persons, the seasonal decrease in unemployment, recorded each year, occurred again. In July, unemployment rose by approximately 5.1 thousand, fell in August by roughly 1.4 thousand and remained at the same level in September. Compared to the year beginning, unemployment decreased by approximately 21.3 thousand persons and the total number of registered unemployed persons was 163.9 thousand as of 30 September, while the unemployment rate was 3.2%. Since July, the labour market has been marked by stagnation of the unemployment rate. In regional terms, some districts still have a high unemployment rate. The number of vacancies was steadily increasing throughout the year, but in September fell by roughly 4.9 thousand compared to the previous month. At present, labour offices register about 82.2 thousand vacancies. Current developments in registered unemployment are marked by a negative feature, i.e. prolongation of the average time of unemployment, presently 5.3 months.
18) During Q3, the privatisation process (large-scale privatisation) continued in all industries of the Czech economy. From the beginning of privatisation to end-Q3 1994, 3,890 privatisation projects representing assets worth CZK 898 bn were presented to the NPF within the framework of the 1st and 2nd waves. As of 30 September, privatisation of assets worth CZK 637 bn was completed. Of the transformation methods, the most frequently used was that of converting state-owned enterprises into joint stock companies through which assets worth CZK 555.0 bn (87%) were privatised by the end of Q3. This method was followed by direct sales worth CZK 90 bn, public competitions worth CZK 14.0 bn, and public auctions worth CZK 4.0 bn. The NPF effected free transfers of assets worth CZK 12.0 bn to cities and municipalities and restitutions accounted for the same amount.
19) An assessment of financial performance was based on the latest available CSO data, as of 30 June 1994, in current prices, for non-financial organisations and enterprises with more than 25 employees. Pre-tax profit increased by 7.2% in Q2 1994, compared to Q2 1993 (about 12% in the 1st half as a whole). Losses were recorded in agriculture, transport and retail trade, but these did not reach the levels of the 1st half of 1993. The insolvency of organisations (measured by the indicator of overdue commitments) slightly decreased in Q2 compared to Q1. In Q2 1994 overdue commitments (CZK 132 bn) accounted for roughly 20.5% of total commitments (21.7% in Q1); as of 30 June 1994, a decline was registered by 3.6% (by CZK 4.9 bn in absolute terms). Similar development was seen with respect to overdue receivables.
20) Based on information acquired from individual organisations (from CNB respondents) it can be said that the most significant problems (restructuring, changes in production programmes and in ownership) were solved during 1991-1993. Current changes are predominantly focused on increasing economic profitability. Relations between suppliers and customers are being gradually consolidated, problems with the solvency of firms clarified and the economic and financial positions of most organisations stabilised. Worse economic results are due in some cases to excessive production capacities (of equipment as well as labour), which cannot be utilised because of insufficient domestic and foreign demand.