Crisis 2.0? Czech export economy to rely on BRICS

Petr Holub
11. 8. 2011 12:08
Czech industry increasingly exports to China and other emerging economies, with German firms as intermediaries
The motor of the Czech export-oriented industry
The motor of the Czech export-oriented industry | Foto: Ludvík Hradilek

Prague - There are growing worries that after two years of a dubious and uneven recovery from the 2008-9 crash, the global economy is yet again falling into a crisis.

If this proves to be true, the Czech economy is going to rely on one and only weapon - its export-oriented industry. However, the Czech Republic's heavy dependence on exports may also very well become the country's largest weakness.

It all depends on two factors: the demand for Czech industrial products from Asia, and German businesses which play crucial role in selling Czech goods above all in China or Turkey.

The fact that the export is going to be the Czech economy's only hope is clearly shown by the economic data of the Czech Statistical Office on the first half of 2011. "Construction and agriculture are in decline, services and households' consumption are stagnating, new investments have not arrived," said Josef Vlášek, director of the Czech Statistical Office, about the underbelly of the Czech economy. Because of the weakness of the domestic consumption, the economic growth is going to come only from the export-oriented sectors of the industry.

"The crucial sector are cars, the sector of mechanical engineering has been partially recovered, and manufacturing of electrotechnical products is important as well," said Vlášek about the industrial sectors that are going to drive the growth of the Czech economy.

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Engineering constitutes 55 percent of total exports - the sales in the first half of 2011 were 10 percent higher than in 2008, before the crash.

In the first two quarters, the Czech Republic exported cars worth CZK 140bil, which means the revenue grew by one-third compared to 2008. In addition, cars already constitute 10 percent of all exports. In addition, the industry exported CZK 100bil worth of car parts in the same period.

"It appears that the countries that could rely on strong industry were more successful during the crisis of 2008 and 2009," said Vlášek. In case of a double-dip, the Czech Republic may rely on the same strategy.

Go East

In addition, Czech export in the last two years benefited from a partial reorientation of the Czech export industry towards Asia. "Before the (2008) crisis, our companies exported from 70 percent to the EU. This year, we send 40 percent of our products to Europe, and another 40 to Asia including Russia," said Jan Rýdl, the chairman of the Association of Engineering Technology. The association represents above all smaller firms producing machines used in metal processing industry.

The Czech Statistical Office's data confirm this new orientation. The exports to China increased by 100 percent, to Turkey by two thirds, and to Russia and India by one quarter. The demand from the remaining countries of the BRICS group, Brazil and South Africa, is growing quickly too.

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Unlike most of the developed world, the fast-growing BRICS countries are not burdened by debt crisis, and as such their booming markets can substitute the falling demand from budget-cutting European countries such as Italy or Spain.

The Chinese example shows that even in remote countries, the most competitive part of Czech exports is machinery for factories. These products constitute more than one third of Czech exports to China.

Germany still key partner

However, in spite of the growing role of developing markets, the key trade partner for the Czech Republic is still the neighboring Germany. Czech exports to Germany are six times larger than Czech exports to Russia, China, Turkey, and India combined.

Read more: Pulled by German boom: 2010 in Czech economy

"It is true that the main part of Czech exports go via Germany. But more and more of these products are then sent to Russia and Asian countries," said Vlášek, explaining the strong position of Germany.

German exports to China doubled in the last three years. In 2008, the Asian giant was 13th largest recipient of German products, now it is 6th largest. If this trend continues, in 2012 China will be the second largest trade partner of Germany, after France.

For the Czech Republic, China is the 17th largest importer. That's why Czechs have to rely on Germany and, to a lesser degree, France as middle-men.

However, German firms have lost some ground in Russia during the crisis, while Czech car-makers' position in the Russian marked has improved in the same period.

Read more: Richest Czech pursues new investment venture in Russia

Czech firms are also more successful in Israel.

 

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