Economy follows German lead

Germany's growth got a boost from industrial production in October, which was up 2.9 percent on the month and 11 percent compared with October 2009, but "Europe's economic engine" had weak trade numbers at the top of the fourth quarter as exports fell 1.1 percent on the month, to 83.3 billion euros.

Both economic indicators outdid economists' expectations, though in different directions. Analysts had predicted a smaller decrease on exports as well as smaller growth in industrial output. In the latter category, the news was at least better than expected, said Vladimír Pikora, an analyst at Next Finance.

"The market expected only growth of 1 percent," he said of October's industrial output. "This is great news, which shows that the Czech, Slovak and Polish industries grew also. The rate of growth will not reach previously experienced levels, but it will grow, nonetheless."

For the full year, the German economy is expected to post a robust 3.4 percent growth, according to the government's official forecast, a positive trend especially for the Czech Republic, which sends nearly one-third of its exports to its larger neighbor. The share of exports in the Czech economy is greater than most countries, at nearly 70 percent. The Czech economy, buoyed by Germany's recovery, has in fact seen GDP growth of 2.3 percent in the third quarter of 2010 compared with the same period last year.

German imports are therefore one of the most important indicators for Czech economic health, and recent data is extremely positive. German imports rose 0.3 percent in October compared with September, to 72.6 billion euros, the country's highest post-war level, signaling a healthy domestic demand for goods.

Despite the good news in the Czech Republic, Germany and other European economies, those positive indicators are by no means Europe-wide, as southern member states continue to struggle and economists wonder whether Portugal and Spain will be next to approach Brussels for bailout funds, following the leads this year of Greece and Ireland.

"Unfortunately, the cohesion between Germany and the south of Europe is diminishing, and therefore today's data say said nothing of Greece or Spain," Pikora said.

As the gap between economies in the EU widens, Germany is pressuring better-performing economies to join the eurozone, at the risk of the euro failing as a currency, according to sources in reports by the Czech daily Lidové noviny (LN) Dec. 11 and in The Wall Street Journal.

LN reported that German Chancellor Angela Merkel had pressured Prime Minister Petr Nečas to put a priority on the Czech Republic's euro adoption, which has recently waned in support among monetary policy leaders from the Czech National Bank (ČNB) and the Finance Ministry. Merkel also reportedly made a similar argument to Polish Prime Minister Donald Tusk during a recent visit to Poland, LN reported, as part of a push to bring in stronger economies to the eurozone.

However, in a statement made to Reuters Dec. 12, Merkel's spokesman, Steffen Seibert, denied any such conversations took place.

"The German government is not pressuring any country to accelerate the entry process," he said.

Škoda drives Czech GDP

The ČNB published figures Dec. 9 on third-quarter growth that exceeded even its own forecast, according to a statement released on its website. Seasonally adjusted GDP growth reached 2.8 percent in the third quarter of 2010 compared with the same period in 2009, and was up 1 percent compared with the second quarter of this year.

"This increase in economic activity is higher than the current ČNB forecast, by 0.1 percentage points in year-on-year terms and 0.2 percentage points in quarter-on-quarter terms," the ČNB said.

The bank cited higher-than-expected inventory growth on the domestic market and growth rates in exports and imports of services and goods that were also above expectations. The ČNB's overall forecast for 2010 reckons with GDP growth of 2.3 percent.

The company with the single largest share of Czech exports, Škoda Auto, is posting record sales this year and is expected to sell more than 750,000 units by the end of 2010, a record for the company.

Škoda sold 702,400 units by the end of November, the company announced Dec. 9, and its sales grew 5.1 percent in the Czech Republic compared with the first 11 months of 2009.

"Škoda is clearly accelerating and has every chance to grow at a double-digit rate this year," said Jürgen Stackmann, board member for sales and marketing at Škoda Auto. "With strong growth in November, we're on track to achieve our sales forecast of 750,000 sold vehicles this year. That is a more than solid basis for our ambitious growth objectives for the coming years."

Claire Compton can be reached at
ccompton@praguepost.com