Foreign trade boomed in July to a record 1.15 billion Kč ($47.4 million) surplus, defying predictions that the stagnating economy in Germany, the Czech Republic's largest trading partner, would hamper economic growth at home.

July's foreign trade increased 8.4 billion Kč compared to the same period last year, and analysts predict strong economic growth in the second quarter — a dramatic improvement compared to last year's second quarter, when foreign trade saw a deficit of more than 5 billion Kč.

"Elimination of the last barriers in foreign trade led to a dramatic increase in exports and imports," said Vladimír Pikora, chief economist at Volksbank.

Analysts credit the country's strong economic growth to the number of multinational companies that moved production from the West to more cost-effective Eastern Europe, as well as to the country's entry into the European Union last May. According to Pikora, German investors have moved production to the Czech Republic, which serves as a cost-savings buffer for them when demand goes down in Germany. "As a result, even if the German economy slows down, the Czech Republic is still exporting," Pikora said.

Coming of age

While the slowdown in Germany at the end of last year had a negative effect on many neighboring countries, including Hungary and Poland, it did not have a great impact on the Czech economy, according to analysts. Petr Sklenař, analyst at Atlantik Finanční trhy, stressed that the country was able avoid repurcussions in large part because of its ability to attract the greatest influx of foreign investment in the past compared to the rest of Central and Eastern Europe. Those investments, Sklenář pointed out, helped develop the car industry and technologies that are now a part of the nation's strong export industry.

The Czech Republic is growing despite stagnation in Germany, which accounts for up to 40 percent of the country's exports. Analysts say the strong results prove the country is no longer directly dependent on developments in Europe's largest economy. "The Czech Republic seems to be quite immune to developments in Germany," said Pavel Mertlík, chief economist at Raiffeisenbank.

Neighborly relations

In the meantime, recent reports in the Western media indicate that Germany may be poised for an economic rebound. That optimism is based primarily on the country's strong export performance. Last year Germany regained its position as the world's biggest exporter, according to The Economist.

However, analysts caution that the upbeat reports on Germany's economic strength are exaggerated. "Our own analysis does not allow us to share this optimism," said Sklenář. "The positive results that have emerged were, for the most part, statistical effects rather than real economic development."

While Germany's exports have increased and its unemployment rate has begun to fall, domestic demand, the weakest link in its economy, is still low. Retail sales dropped 0.6 percent in July compared to the same period last year; they decreased 3 percent year on year.

And a Business Climate Index released by Ifo, a Munich-based economic research institute that monitors developments in Germany, fell slightly in August. The index, based on about 7,000 monthly responses from companies in manufacturing, construction, wholesaling and retailing, worsened mainly in the retail and wholesale sectors.