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Economy growing at record level

Strong fourth-quarter consumer spending buoyed GDP rise

By Michael Heitmann
Staff Writer, The Prague Post
February 20th, 2008 issue

The economy grew at a record pace in 2007, the Czech Statistical Office announced Feb. 15. The gross domestic product (GDP) rose 6.6 percent year-on-year, surpassing the previous record set in 2006, by 0.2, percentage points.
The growth numbers surpassed the expectations of many analysts, who had projected last year’s economic growth at 6 percent only days earlier. Most are confident that this year will see less exuberant but solid growth for the economy.
Manufacturing remained the largest contributor to the economy, with its share hovering at about 35 percent. But the driving force for last year’s growth was household spending on food, education, electricity and health.
“The growth was facilitated by low unemployment, which in turn forced wages up,” said Česká spořitelna analyst David Navrátil. “Also, the government’s pre-election incentives increased disposable personal income.”
The government’s actions have little immediate influence on the economy, most analysts agreed.
“The specific measures approved by the government in recent months will influence the economy only after two to four years,” said Vojtěch Benda, senior economist at ING Wholesale Banking.
“I expect the economy to slow down somewhat next year to 4.5–5 percent growth,” Benda said. “In the following years, growth numbers may go up again if the temporary effects of governmental influence on prices subside and rising food and gasoline prices cool off.”
The Organization for Economic Cooperation and Development reported Feb. 19 that GDP in its 30 member countries, including the Czech Republic, rose a meager average of 0.5 percent in the fourth quarter of 2007. This was far from the Czech GDP growth for the same time, which spiked up to 6.9 percent.
The economy is currently on a different cycle than the United States or the old European Union member states, Benda said. The U.S. slowdown might even benefit the domestic economy, since the Czech Republic can promise continued growth, offering investors the potential of higher returns than developed markets, he added.
Raiffeisenbank analyst Aleš Michl predicts global conditions will serve as a mild damper on the economy, but the country should still see around 5 percent growth each year until 2010.
“The launch of production at Hyundai will help industry a lot,” Michl said. Hyundai’s plant in the Moravian-Silesian region is due to begin production at the end of 2008. The government hopes automotive suppliers will subsequently create as many as 9,000 jobs.
The launch of more export-oriented products, especially new Hyundai and Škoda cars, should keep growth at about 5.5 percent year-on-year, added Jan Bureš, ČSOB’s primary economist.

Michael Heitmann can be reached at mheitmann@praguepost.com


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