Floods: economic and budgetary implications

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Floods: economic and budgetary implications

The floods, which devastated the Czech Republic last August, had an impact on all sectors of the economy. The estimated damage could reach Kc100bn, i.e. 4% of the GDP, according to government’s estimates.

The consequences of the floods will weigh on the activity of the third quarter 2002. The generated disruptions are indeed multiple: damaged factories, problems of communication and logistics, drops in the number of tourists… Thereafter, the GDP should be stimulated by several factors: rebuilding of the infrastructures and telecommunications, construction of new factories, replacement of the destroyed goods, which could support the households’ demand.

For the whole year 2002, the impact of this natural disaster on the GDP would be negative of about -0.3% to -0.5%. So, the growth in 2002 could be between 2,5% and 3%, according to the estimates of the major banks.

The Czech companies are hit as a whole. They are indeed hit directly or indirectly via the temporary deceleration of the activity, the logistic disruptions, the loss of contracts, the rise of the insurances’ premiums to come.

Conversely, the building firms will profit from the rebuilding to come as well as the suppliers of equipment goods. The total losses remain difficult to evaluate. It is known in particular that the association of the Czech insurances received requests corresponding to direct damage of Kc31bn, a great part of that emanating from companies. Taking these figures into account, the total damage (direct and indirect) for the companies could amount approximately to Kc38bn (1,2bn).

Among the groups most severely hit, there is Unipetrol, whose petrochemical factories were located near the water and Vivendi Water, a French subsidiary, which among other things is in charge of Prague’s water management. With regards to the French subsidiaries established in the Czech Republic, the total damage could amount to Kc2bn (65 M), according to estimates of the French Economic Mission in Czech Republic.

Assistance available to firms. The Ministry for Industry and Trade announced a new scheme, which will be implemented via CMZRB Bank (Moravian-Czech Bank of guarantees and development), in the form of loans (up to 130 M) under advantageous conditions. The Ministry will subsidize this scheme up to Kc500m (16,3 M).

In addition to that, the EU will reallocate nearly 60 M to take part in the rebuilding work:

  • 10 M in the form of Phare funds (for rebuilding of bridges and roadways).
  • 48 M in the form of Ispa funds – not yet allocated for 2002 – which could be devoted equally to the traditional fields: transport (motorways, bridges, railroads) and environment.

The Czech State would take in charge approximately Kc30bn (1bn). This additional expenditure related to the floods could weigh on the deficit of the public sector in 2003, whereas it should already exceed 9% of the GDP in 2002 (excluding privatizations’ revenues).

However, arbitrages would be realized with other planned investments and revenues of last privatizations could be assigned to the management of the crisis. However, it is likely that the government must call upon other financing sources.

For more analyses see the

enlargement website of DREE.