1. Foreign Trade Figures in the Czech Republic in 2010

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1 1. Foreign Trade Figures in the Czech Republic in 2010 Foreign trade in the Czech Republic ended 2010 with a surplus of CZK billion. Although this is CZK 28.4 billion less than in 2009, it is still the second highest foreign trade figure since 2005, when foreign trade figures achieved a positive value for the first time since the constitution of the Czech Republic. For the first time in history, exports exceeded CZK 2.5 trillion and imports reached CZK 2.4 trillion was characterised by faster growth in imports over exports (exports only grew faster than imports in Q1). Cumulatively, exports increased year-on-year by 18.4 % and imports by 21.2 %. Foreign trade turnover is also worth mentioning, increasing year-on-year by 19.8 % to CZK 4,944.1 billion and achieving its highest figure since the constitution of the Czech Republic. Foreign trade thus significantly contributed to the recovery of the Czech economy. Foreign Trade in 2010 (Year-on-year change in exports and imports in %, balance in CZK bn) Source: CSO, September 2011, graph MIT, Department for Economic Analyses Foreign trade results were affected by, among other things: the low comparative base in 2009, where exports fell by 13.5 % and imports by 17.3 % as a result of the global economic and financial crisis 1

2 increased industrial production, new foreign industrial orders grew continuously from November 2009 and increased by 16.8 % in 2010 year-on-year the growing price of oil and other commodities the recovery of the global and European economy. An important factor for the Czech Republic was the recovery of the economy in the EU, where 84 % of total exports are directed, and especially Germany, where 32.3 % of all products intended for export were directed last year. To a certain extent, this country thereby predetermines the development of exports in the Czech Republic. continuing weaker domestic demand, indicated by lower growth in the import of industrial consumer goods, as well as certain food products the exchange rate of the Czech crown and foreign trade prices. On average, export prices weakened over the year by 0.1 % and import prices, in contrast, rose by 2 %. This had an unfavourable affect on the rate of exchange, which reached 97.1 %, this being 6.7 p.b. less than in Rates of exchange remained at negative values in all four quarters and therefore had a negative affect on the foreign trade balance at current prices. Import and Export Prices, Terms of Trade (year-on-year changes in %) Source: CSO, September 2011, graph MIT, Department for Economic Analyses Territorial Structure Exports to EU countries in 2010 jumped by 17.4 % year-on-year and although their share of total exports in the Czech Republic fell by 0.7 p.b., they still totalled 84 %. Imports increased by 15.1 % compared to This group s share of the Czech Republic s foreign trade turnover was 73.9 %. The surplus trade balance with European Union countries increased by CZK billion year-on-year to CZK billion and thus covered the trade balance deficit recorded by the Czech Republic with non-european countries (-CZK billion). 2

3 Territorial Structure of the Foreign Trade of the Czech Republic in 2010 TURNOVER y/y EXPORT y/y IMPORT y/y BALANCE 1-12/2010 change 1-12/2010 change 1-12/2010 change 1-12/2010 CZK mill share in % in % CZK mill share in % in % CZK mill share in % in % CZK mill Total ,0 19, ,0 18, ,0 21, Developed market economies ,0 16, ,2 18, ,4 14, EU countries ,9 16, ,0 17, ,4 15, EFTA countries ,1 21, ,2 22, ,0 21, Other developed market economies ,0 19, ,0 32, ,1 11, Developing countries ,8 25, ,0 9, ,8 36, European transition economies ,6 12, ,8 9, ,3 22, Commonwealth Independent States ,8 36, ,0 34, ,7 37, Others *) ,6 47, ,0 47, ,5 47, Unspecified ,2 15, ,1 65, ,4 9, OECD countries ,5 16, ,2 17, ,5 15, * China, North Korea, Cuba, Laos, Mongolia, Vietnam Source: CSO, September 2011, adaptations and table MIT, Department for Economic Analyses Traditionally the Czech Republic recorded its highest positive trade balance with Germany (CZK billion), whose share of the Czech Republic s total exports was 32.3 % and 25.4 % of imports. Exports and imports increased by 18 % and 16.1 % respectively. The Czech Republic s second highest positive trade balance was with Slovakia (CZK 91.3 billion), followed by Great Britain (CZK 75.8 billion) and France (CZK 55.4 billion). In contrast, there was a year-on-year deterioration in most countries with which the Czech Republic shows the highest trade balance deficit in The most appreciable deterioration was recorded in trade with China, South Korea, Azerbaijan and Russia. The process of diversifying Czech exports to more distant territories continued, where, for example, exports directed to the African continent and Near East exceeded CZK 59.8 billion for the first time and the trade balance jumped to an encouraging CZK 42.1 billion. Exports to the Asian and Pacific region also developed favourably, achieving a record CZK 81.8 billion in This figure exceeded the result in the previous year by more than 30% and also exceeded results in the pre-crisis period. Foreign Trade of the Czech Republic with Selected Countries in 2010 Country CZK mill TURNOVER EXPORT IMPORT 1-12/ / /2010 y/y change y/y change y/y change CZK mill in % share in % CZK mill CZK mill in % share in % CZK mill CZK mill in % share in % BALANCE 1-12/ /2010 y/y change CZK mill Germany ,2 29, ,0 32, ,1 25, Slovakia ,1 6, ,2 8, ,9 5, Poland ,7 6, ,7 6, ,8 6, China ,8 6, ,2 0, ,9 12, Italy ,3 4, ,9 4, ,3 3, Russian Federati ,7 4, ,7 2, ,8 5, France ,7 4, ,1 5, ,9 3, Austria ,5 4, ,7 4, ,1 3, United Kingdom ,0 3, ,0 4, ,5 2, Netherlands ,9 3, ,1 3, ,0 3, Hungary ,6 2, ,7 2, ,2 2, Belgium ,3 2, ,1 2, ,6 1, Spain ,7 2, ,0 2, ,9 1, USA ,0 2, ,1 1, ,9 2, Japan ,3 1, ,5 0, ,1 2, South Korea ,2 0, ,4 0, ,3 1, Norway ,8 0, ,2 0, ,9 0, Taiwan ,4 0, ,9 1, ,7 1, Malaysia ,6 0, ,8 0, ,7 0, Source: CSO, April 2011, table MIT, Department for Economic Analyses 3

4 Commodity Structure The Czech Republic s dependence on the export of machines and transport vehicles rose slightly compared to 2009 with their share of the Czech Republic s total exports and imports increasing by 1 p.b. to 54.6 % and 2.1 p.b. to 43.4 % respectively. From a commodity perspective, the automobile industry played a traditionally key role. Road vehicles made up a total of 17.7 % of the Czech Republic s total exports in The trade balance surplus in this group of products was CZK billion, which is CZK 41.9 billion more than in the same period in the previous year. Mineral fuels had a negative impact on the overall trade balance, which, as a result of a higher growth in imports (+25.8 %) than exports (+21 %), with the current increase in import prices, resulted in a deepening of the trade balance deficit by CZK 31.2 billion to CZK billion. Commodity Structure of the Czech Republic s Foreign Trade in 2010 EXPORT y/y IMPORT y/y BALANCE 1-12/2010 change 1-12/2010 change 1-12/ /2010 y/y change Nomenclature SITC CZK mill share in % in % CZK mill share in % in % CZK mill Total ,0 18, ,0 21, of which 0 Food and live animals ,0 3, ,7 5, Beverages and tobacco ,7 3, ,6 6, Crude materials ,0 31, ,7 44, Mineral fuels, lubricants and related materials ,7 21, ,6 25, Animal and vegetable oils, fats and waxes ,2 56, ,2-25, Chemicals and related products ,5 20, ,7 15, Manufactured goods classified chiefly by material ,2 15, ,8 22, Machinery and transport equipment ,6 20, ,4 27, Miscellaneous manufactured articles ,1 12, ,3 4, Commodities and transactions n.e.c. in the SITC ,1 46, ,1 45, Source: CSO, September 2011, modifications and table MIT, Department for Economic Analyses Anticipated Foreign Trade Development in 2011 Trade balance figures reached CZK 45.3 billion in Q2 2011, which is CZK 11.7 billion higher than in the same period last year. Exports and imports increased at a double figure rate, growing by 13.5 % and 12.3 % respectively. However, the last month of the second quarter brought a long awaited slowdown in the tempo of growth, primarily caused by the continuing problems of the Euro Zone and a resulting decline in economic growth in its member states. In July, exports and imports recorded their lowest growth this year, which was 9.3 % and 4 % respectively. Companies still managed to export to our main export markets (Germany and Slovakia), where the increase in exports exceeded 10 % year-on-year. Imports were largely driven higher by higher commodity prices, especially oil. Based on our estimates, Czech foreign trade has little chance of withstanding the deteriorating situation on foreign markets. Above all, it will be negatively affected by the stagnation (and possibly future recession) of the Euro Zone, while domestic demand, which would stimulate imports, is not growing at any pace (retail fell year-on-year for the second month in a row). 4

5 All indicators considered relevant in forecasting the further development of foreign trade in the Czech Republic and the situation in the Euro Zone do not predict any improvement. The largest European economy, Germany, has noted growing pessimism in the eighth month of the year. The business mood in Germany, measured by the Munich Ifo institute s business climate index, fell sharply to points from July s points. A fall was evident in all sectors from industry through construction, to retail and services. At the same time, analysts and investors confidence has also declined significantly, with the lowest confidence in the German economy recorded in the last 2.5 years. The ZEW Institute Index fell to points from July s -15 points. Given the close connection between the Czech and German economy, the low values of advance indicators are also a warning signal for the Czech Republic. Overall confidence in the Czech economy fell again in August. Both consumers (-2.7 points) and entrepreneurs (-1 point) have less confidence in the Czech economy. Economic sentiment fell by 1.3 points month-on-month in August and is lower by 3.3 points year-on-year. Industry sentiment and that of certain services has weakened among entrepreneurs (-1.7 points and -1 point respectively), but remained stable in construction and grew in trade (+ 3.7 points). Apart from construction however, confidence in other sectors is still higher than during the period of recession. 5

6 2. Czech Industrial Figures for 2010 in the Context of the EU Market and the Outlook for 2011 Industrial Development in 2010 The Czech economy profited from the unexpected recovery of the German economy in 2010 and the continuing revival of other major economies. In view of close trade and economic ties, this was reflected in the growth of industrial production by 10.3 % (double figure growth was achieved from Q2). Industry thus significantly helped revive foreign demand, alongside growing domestic demand. However, these favourable figures must also be seen in the context of the low base in the previous year (especially at the beginning of the year), when production and orders hovered at the lowest levels (production dropped by almost one fifth and orders by approx. 23 %). The effect of this low base however, gradually waned during the course of the year. At the end of 2010, industry was at approximately the same level as in the second half of Industrial production, employment and new orders, including trends (organizations with 50 or more employees, year-on-year changes in %) Pramen: ČSÚ Source: CSO, September 2011, adaptations and table MIT, Department for Economic Analyses There is a very close mutual relationship between the development of industrial production in the Czech Republic and that of our most important trade partner, Germany, which is expressed by the correlation coefficient 0.94 (data from January 2009 December 2010 was used for the calculation). High industrial performance was reflected in a year-on-year increase in production in most of the main industrial groups. Increased investment activity was reflected in increased production for investment (+16.8 %). Increased cooperation within multinational companies was reflected in increased production for intermediate consumption (+11.3 %). Energy 6

7 production also saw slight growth (+3.2 %). An improvement in consumer demand, influenced by higher salaries and a reduced fall in employment, together with discount prices on passenger vehicles, was reflected in increased production for long-term consumption (+3.2 %) following the sharp decline in 2009 (-23 %). Production for short-term consumption stagnated. In the processing industry, divided according to the technological level of production, the HIGH-TECH sector recorded the highest growth in production with revenues increasing by 20.4 %. This sector uses advanced technologies to create high added value. Its share of total revenues in the processing industry grew by 0.8 p.b. to 12.6 %. As well as the manufacture of computers, this sector also includes the manufacture of pharmaceutical products and the manufacture of medical and dental instruments. The MEDIUM-HIGH-TECH sector recorded an increase in revenues of 15.1 %, increasing its share of total revenues by 1.1 p.b. to 45.6 %. The automobile industry, mechanical engineering, the electro-technical industry and chemical industry also have an important place in this sector. Production in the MEDIUM- LOW-TECH sector also grew with an increase in revenues by 13.6 %. This sector includes the metallurgy industry, oil refineries, the rubber and plastics industry and the production of non-metal mineral products. In contrast, the LOW-TECH sector recorded a slight decrease in production of 0.6 %, with a reduction in its share of total revenues by 2.1 p.b. to 15.7 %. This sector primarily includes branches with decreased production food processing, clothing, leather manufacturing and wood processing industries and furniture production. Developments in the processing industry in 2010 were affected by high growth in orders (which grew by 17.2 % in the EU, 17.7 % in the Euro Zone and increased strongly in the case of our most important trade partner, Germany by 25.3 %). Thanks to these closely tied economies, branches with a high share of foreign capital and export oriented production profited most from this increased demand. Production increased in 15 of the 24 branches of the processing industry. The main driving force of growth was the manufacture of automobiles, trailers and semitrailers, whose production increased by 22.7 % (with a decisive 22.2 % share of total industrial production). As well as the automobile industry, there was also significant growth in the manufacture of computers, metallurgy and the manufacture of metal structures and mechanical engineering. Production in fields and branches manufacturing parts and accessories for the automobile industry also developed favourably. Growth branches were responsible for 75.8 % of production in the processing industry. In contrast, production fell in eight less prominent branches with a 13.6 % share of revenues in the processing industry. The largest fall was recorded in furniture production, clothing and the manufacture of other non-metal mineral products. A smaller decrease was recorded in drinks manufacturing, the production of leather and related products, the manufacture of food products, printing and reproduction of recorded data carriers, wood processing and the manufacture of wood products. An important indicator of future development is the total volume of new orders in the industry, which rose by 14.1 % year-on-year in selected branches at organisations with 50 or more employees, foreign orders increased by 15 % and domestic orders by 12.4 %. The trend 7

8 in orders (as in production) was significantly affected by orders in Euro Zone countries and especially Germany. The high increase in orders at our most prominent trade partners was reflected in the volume of foreign orders, which made up 63.9 % of total orders in The highest increase in the volume of orders was in metallurgy (+33.3 %), mechanical engineering (+20.6 %), the manufacture of electrical equipment (+20 %), automobile manufacturing (+16.3 %) and the manufacture of computers (+13.2 %). This was also reflected in an increase in revenues. Increased industrial production and the increased volume of orders was reflected in a reduction in the fall of employment (falling by 11.3 % in Q1 and 0.9 % in Q4), which fell by 5.0 % in Only 2 branches recorded an increase in employment in the manufacture of electrical equipment (+2.2 %) and the manufacture of rubber and plastic products (+ 0.4 %). Favourable developments in revenues (growth by 10 %) with a reduction in the fall of employment (by 5.0 %) in 2010 were reflected in increased productivity of labour by 15.8 %, which exceeded growth in real wages (by 12.6 p.b.). This favourable relationship was reflected in a fall in unit wage costs in most branches. Unit wage costs only increased in four less prominent branches (the manufacture of food products, drinks manufacturing, the production of leather and related products and the manufacture of other non-metal mineral products). Anticipated Industrial Development in 2011 Germany s strong economic recovery and the continuing revival of other major EU economies in 2010 was reflected, in view of strong trade and economic ties, in the growth of industrial production by 10.3 %. This trend continued in Q1 2011, where industrial production grew to 12.7 % achieving one of the highest levels of growth since 2001 (growth was 13.7% in Q1 2007). High growth was influenced by an increase in industrial production and orders in the Euro Zone, especially Germany (orders increased by 21.5 %), which is our major trade partner. This was reflected in an increase in foreign orders by 20.5 %, which became the driving force of growth. Domestic orders saw a slight fall (-0.1 %). Growth was concentrated in the processing industry, where production increased by 15.8 %. The main driving force was the manufacture of automobiles, trailers and semi-trailers, which jumped by 27.3 %, making up almost one quarter of the industry s total revenues (24.8 %). Automobile companies Hyundai and Škoda Auto recorded very good results, making up 75.3 % of production in the automobile industry. Škoda Auto, in particular, recorded the best sales results in its history in this period. The manufacture of metal structures and metal products, rubber and plastic products and the manufacture of machinery and equipment also strengthened. Despite the unfavourable signals of foreign advance indicators and the domestic business cycle survey by the CSO, which signalled a fall in production activity and weakening confidence by entrepreneurs, industrial production increased by 9.1% in Q2 (although growth slowed, it still achieved a solid result). The slowdown of industry was influenced by decreased growth 8

9 in foreign demand (falling by 7.3 points quarter-on-quarter) and a decline in domestic demand. The situation in the crucial automobile industry developed favourably, where increased demand at the Škoda automobile company affected sales. As well as this branch, dynamic growth was also seen in the manufacture of other transport vehicles and equipment, mechanical engineering, the manufacture of electric equipment and the manufacture of rubber and plastic products. According to a statement by representatives of the largest domestic automobile company, Škoda Auto expects significantly higher sales on all markets in 2011, but especially in Russia, India and China (sales increased by 20.1 % in the first half of 2011). The company wants to double sales within seven years and break the barrier of 1.5 million manufactured cars per year (in the seven months of 2011, half a million sold cars was exceeded for the first time). Domestic sub-contracting branches and fields will also profit from the growth in the automobile industry. Industrial production increased by 10.8% in the 1 st half of The worsening prospects of Czech industry were confirmed by the August domestic business cycle survey conducted by the CSO in which respondents rated the current economic situation worse than in the previous period. In the next three month period, they expect unchanged production activity and employment. According to the CSO, confidence in Czech industry declined by 1.7 points overall in comparison to June and weakened by 3.7 points year-on-year. However, compared to figures during the period of recession, confidence is still at a significantly higher level. However, based on developments in advance indicators, we can expect another slowdown in industrial production in individual branches. The fall is already evident in the volume of industrial orders in the crucial branches of transport vehicles and equipment and the automobile sector. In view of the results achieved to date and developments in domestic and foreign advance indicators, we estimate the overall growth of Czech industry in 2011 to be in the range of 7-8 %. The development of foreign and domestic orders and sales for selected sectors in 2011, including trends (year-on-year changes in %) Source: CSO, September 2011, MIP 9