Survey reveals optimism for 2010

Czech business executives believe the economy will improve significantly over the next six months, according to a new report on business sentiment in Central and Eastern Europe. Whether such positive thinking is actually capable of boosting sales remains to be seen.

Deloitte's 2009 Business Sentiment Index, published Dec. 14, surveys 180 companies from Croatia, the Czech Republic, Hungary, Poland, Romania and Slovakia in a variety of sectors, including banking, the automotive industry and energy. The results are encouraging for Czech investors and businesses, with 43.3 percent of Czech respondents believing the economy will improve over the next six months, compared with only 12.9 percent in September. The Czech Republic is now the most optimistic country in the region according to the study, but Béla Seres, financial adviser for Deloitte Central Europe, cautions that "it's important not to take these positive changes for granted."

"Credit appears to be flowing again, plans to invest in capital expenditure are increasing, and a larger proportion of executives now expect revenue growth. All of these are good indications that many companies have reached the bottom and further substantial deterioration is now not expected by most executives," he said.

Seres added that many companies predict employment will continue to fall, and acquisition activities will remain static over the next half-year. Such sobering predictions "are obviously of concern and show overcapacity in the economy, following a sharp output drop," he said.

The most significant question raised by Deloitte's study and the general optimism on the Czech market is how much optimism among executives can become a self-fulfilling prophecy. Many companies, believing they will see a return to growth over the next six months, have begun restocking inventories to meet an ongoing and expected increase in demand. Such activity is a boon to production facilities and will be a major driver of the Czech economy in 2010, said Martin Lobotka, an analyst at Česká spořitelna.

Nonetheless, increased optimism among businesses is more a response to improving conditions than a catalyst of improvement, he added.

"Consumers tend to drive the economy. First, consumers make the decision to buy, and companies respond," Lobotka said. "But, in any case, this data is a reflection that the recovery is ongoing - and not only in the Czech Republic but throughout Europe. The recovery is going to be slow, but it is happening."

Executives throughout the Czech Republic echoed the sentiments in the report. The construction and real estate sectors were among the worst affected by the economic crisis, as banks stopped lending and many companies were forced to slow ongoing projects and shelve future plans. But the worst may be over for Czech developers, according to Dušan Šťastník, an investment consultant for King Sturge.

"The atmosphere on the development market has marginally improved following the recent positive statements about the condition of the national economy, especially the partially positive - or less negative - forecasts for the coming year," he said. "Some of the developers and professionals believe they can see the light at the end of the tunnel already."

Some Czech companies, such as Škoda Auto, have made significant changes in production to prepare for what they hope will be a better year in 2010. According to Jaroslav Černý, spokesman for Škoda Auto, the company is particularly dependent on exports to Germany and is thus sensitive to economic fluctuations in both domestic and foreign markets.

"Thanks to a focus on new products with low consumption and an attractive balance between price and utility value, we have been able to increase the share of Škoda in important markets, such as Germany and China," Černý said. "We have also adopted a number of other specific programs that will help to ensure the sustainable economic stability of the company."

Weston Stacey, president of the American Chamber of Commerce in Prague, said companies active in the export-oriented Czech economy have good reason to be optimistic in the short term, as the general economic situation improves throughout Europe. But he cautioned against relying too heavily on passive optimism to fuel growth.

"Germany and other EU markets have a sturdy base and should stabilize soon, which will help Czech manufacturing recover," he said. "Over the long term, however, the country will have to depend on domestic consumption. That will require a more consistent, clear and creative economic policy and a much greater commitment to good governance. I do not see any urgency among the political parties to achieve either."

Stephan Delbos can be reached at
sdelbos@praguepost.com