The Czech Republic on the eve of elections

The Czech Republic on the eve of elections

In Despite an unfavorable international context, the growth in the Czech Republic (RT) resisted quite well in 2001 as it added up to 3,6%, though slightly decreasing during the period.

According to analysts, the growth in 2002 will be of 3 to 3,4%. Domestic demand should continue to support the economy and exports will benefit from a progressive revival of the EU activity. Thus, at the eve of elections (June 14/15), macro-economic indicators on the whole show positive trends.

Nevertheless, even if the strong appreciation of the Czech crown since the beginning of the year has contributed to containing inflationary pressures it penalizes exporters. In addition, the public deficit tends to grow even though a considerable share of this deficit is related to bank restructuring.

In the longer term, the reorganization of the retirement scheme will be a major challenge, especially as the revenues due to privatization will no longer be available. Structural reforms are therefore necessary to stop the increase of the public deficit. Their implementation depends on the political strength of the future government as the power of the current social democrat minority government is only relative.

Considering all investors in 2001, 5.5 billion of FDI inflows came into the country, which represents 8,7% of the GDP after the peak of 11,6% in 1999. These very high amounts of FDI are linked to various advantages of the country:

• the perspective of EU membership guarantees a progressive harmonization of its legislative framework and its commercial practices with European standards, as well as its inclusion in the common market.
• thanks to its long industrial tradition, the Czech Republic has a skilled workforce. If, on one hand, the size of its domestic market is lower than the Polish one, its geographical situation on the other hand allows a good access to all the markets of the region.
• the Czech leaders’ clear willingness to promote foreign investments in their country and to diversify their origin: there are numerous tax advantages for investors and the companies willing to benefit from them are efficiently advised by the government agency ” CzechInvest”.

The French investments were weak until 2000 but exploded in 2001:

With an investment flow of 1.529 billion in 2001 (28% of the total flow), France was the 2nd investor in the country, close behind Germany (1.535 billion ). In terms of stock, France ranks 4th in the Czech Republic with almost 9%, behind Germany, the Netherlands and Austria.

The results in 2001 are mostly due to large financial transactions. Thus, “Vivendi” won the tender to manage the distribution of water in Prague, amounting to more than 180 m , but above all, the French bank “Société Générale” acquired 60% of Komercni Banka, the first Czech bank in corporate banking and the second in retail banking (1.2 billion ). French investors can from now on rely on the presence of a big bank with French capital, and a large network within the country, i.e. 250 agencies and 9 500 employees, which should obviously encourage more investors to come.

For more analyses see the

enlargement website of DREE.