Czech exports dropped by their fastest annual pace on record in January and companies slashed jobs to confront a plunge in euro zone demand, showing the central European state was feeling the full impact of the global crisis. Separate data showed inflation slowed further in February despite a rise in fuel prices and the weakening of the crown currency, leaving open the chances of a rate cut.
Exports slumped by 24 percent compared with a year earlier, data from the Czech Statistical Bureau showed on Monday, the worst result since the 1993 establishment of the Czech Republic. Imports fell 21.3 percent, leading to a larger-than-expected 3.46 billion crown ($156.8 million) monthly trade surplus.
"The data confirm the fact that the Czech economy is being hit by a recession in the euro zone and it is in line with a drop in industrial orders both in the Czech Republic and Germany, which is our key trading partner," said David Marek, chief economist at Patria Finance. He said a worsening outlook for Germany and the euro zone meant he was cutting his 2009 Czech growth forecast to minus 2.6 percent.
The crown currency dipped briefly after the figures but soon returned to previous levels of around 27.55 to the euro as regional currencies gained ground. The data pointed to a continued sharp fall in industrial output across central Europe. Slovakia reported a 27 percent drop in manufacturing in January on Monday. Czech Unemployment surged to 7.4 percent in February, the highest in two years, from 6.8 percent a month ago. The number of people ready to start working jumped by 32,779 to 416,621.
The Czechs, like the Slovaks, Poles and other central Europeans, benefited from a boom in the first part of this decade largely due to investment from foreign manufacturers supplying markets in the richer West. But with a collapse in Germany, France, Britain, and other western countries, Czech exports - which amount to about 70 percent of gross domestic product - have suffered heavily.
Analysts said there were signs of an improvement in the key car sector, mainly thanks to the introduction of subsidies for car buyers in Germany and other more developed EU states. The country's biggest car maker Skoda Auto returned to a five-day working week in March after cutting output to four days earlier this year.
INFLATION DROPS Consumer prices rose 0.1 percent on the month in February, below forecasts, putting year-on-year inflation at 2.0 percent, the lowest since March 2007. The trend of falling inflation is expected to continue into the summer despite a drop in the crown currency which raises import prices.
The central bank has said it would not cut interest rates if the crown remained weak, but analysts said the bank may consider one more reduction in the repo rate, now at 1.75 percent. "We expect interest rate stability in March, unless the crown drops further significantly, but the thought of a further reduction may not be abandoned although the room on the downside is limited," said Michal Brozka, an analyst at Raiffeisenbank.