External trade - 2. quarter of 2004
Product Code: e-6032-04
External trade in the 1st half of 2004
Joining the European Union enabled the Czech Republic to be integrated in the largest free trade zone in the world and to have better terms and conditions of trading. After the removal of customs barriers and the shift of the customs border, the Czech Republic has become a part of the huge single market of the enlarged European Union with the population exceeding 452 million. External trade was, therefore, affected by a number of new administrative and economic factors. The accession of the Czech Republic to the European Union affected considerably – in contrast to other branch statistics – also the way of data collection in external trade statistics.
The changes in conditions of trading in the 1st half of 2004 showed themselves in favourable development of external trade 1) , which was characterised by:
- high growth rates of exports and imports , resulting in the highest external trade turnover ever recorded. Compared with the 1st half of 2003, exports grew by 21.6% (up CZK 145.5 bn) and imports by 20.2% (up CZK 139.8 bn), external trade turnover rising by 20.9% and reaching CZK 1 650.2 bn. Except for January, exports and imports rose in all the months of the 1st half of 2004. In terms of EUR, exports and imports grew by 18.4% and 17.1%, respectively, and in terms of USD by 31.2% and 29.7%, respectively.
The rates of growth are favourable also if compared to EU25 in total. According to Eurostat 2) , the January to May 2004 extra-EU25 exports increased by 6%, extra-EU25 imports by 3% and intra-EU25 trade grew by 5% (all y-o-y, based on EUR),
- rate of exports growing slightly faster than the rate of imports . While imports were still higher than exports, the difference went down. The external trade debit balance of CZK 11.7 bn was by CZK 5.7 bn lower y-o-y . There were differences between individual months – whereas, for example, trade balance was active by CZK 3.6 bn in February, a deficit of CZK 10.8 bn was recorded in April. By group of countries, the balance improved, with the exception of other states 3) (deficit deteriorated by CZK 5.1 bn), in external trade with all major groups of countries (surplus related to EU25 4) rose by CZK 6.0 bn, surplus in trade with European transition economies grew by CZK 2.7 bn, and deficit in trade with developing economies decreased by CZK 7.4 bn y-o-y). In terms of commodity structure , the balance improved only in trade in machinery and transport equipment, where significantly faster growing exports than imports resulted in a y-o-y rise of surplus by CZK 22.4 bn. Other SITC sections saw y-o-y increases in deficit (by CZK 9.5 bn in chemicals and related products, by CZK 2.8 bn in agricultural and food crude materials and products, and by CZK 0.3 bn in crude materials, inedible, and mineral fuels) or y-o-y decreases in surplus (by CZK 3.0 bn in raw products and materials and by CZK 1.1 bn in miscellaneous manufactured articles),
- changes in external trade by group of countries , which were strongly affected by the accession of the Czech Republic to the EU. The EU enlargement (and the growth rates of exports and imports) considerably strengthened the position of EU member states in external trade, particularly at the account of European transition economies. The states of EU25 accounted for 86.8% of total exports and 73.9% of total imports in the 1st half of 2004, European transition economies accounted for 2.0% and 0.6%, respectively. A lower y-o-y percentage of total external trade relations was reported (due to imports) for other states, mainly for developing economies.
- changes in external trade commodity structure . Exports in all SITC sections grew y-o-y, but only exports of machinery and transport equipment increased above the average (+26.0%). These products set the growth rate of total exports and strengthened (at the account of all the other SITC sections) their position in total exports from 50.4% in the 1st half of 2003 to 52.3% a year later. Above-the-average growth of imports was reported again for machinery and transport equipment (+22.5%), also for raw products and materials and miscellaneous manufactured articles. These three SITC sections raised their shares in total imports.
- lower representation of inward processing in total exports (23.7%, as against 27.2% in the 1st half of 2003) and in total imports (16.8%, as against 19.1% in the 1st half of 2003), due to lower growth rates of exports after inward processing (by 5.8%) and imports for inward processing (by 5.9%). The surplus of inward processing was up CZK 2.9 bn y-o-y and reached CZK 54.4bn.
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Before and after the accession of the Czech Republic to the European Union, external trade was affected by a number of factors. Some of them were non-recurrent, some led to constant changes in external trade. The factors can be divided into administrative ones, related to changes in external trade statistics, and economic ones, related to the integration in the enlarged market.
· Administrative factors:
- different way of data collection, changes in the methodology and legislation of external trade before and after joining the EU, which markedly influenced external trade statistics . The system of collecting data on the prevailing part of external trade changed principally. The closely checked legally valid data from the previous Single Administrative Documents have been for the decisive part of external trade replaced by data from special administrative surveys (Intrastat) . These surveys collect, direct from companies (recipients and shippers of goods) and in a link to VAT data, especially data on trade with EU member states (roughly 85% of external trade turnover). The remaining part of external trade, particularly with third states (i.e. EU non-member states), which makes up roughly 15% of external trade turnover, is still subject to the classic customs procedure that provides statistical data source (Extrastat) . External trade statistics are produced by linking data of both systems; however, the simple rule that Intrastat and Extrastat include only intra-EU trade and only extra-EU trade, respectively, does not apply ,
- production of data in Intrastat affects the possibilities of comparing external trade by group of countries, particularly imports from EU member states. The main reason is the reporting of the country of origin in the system of Intrastat, which is often very difficult, because the respondent may not know the country; therefore, the code of the country of consignment is used instead. Goods originating from other states 5) are thus sometimes reported as imports from EU member states.
· Economic factors:
- change in customs tariffs. The Czech Republic has become a part of the customs territory of the European Union. EU-related customs duty has been removed, and other customs duty related to third countries applied. Higher customs duty is imposed on or antidumping measures taken against predominantly goods coming from non-European states. Therefore, the expected changes in customs tariffs affected, particularly in April, the growth rate of imports and, hence, the highest monthly external trade deficit within the 1st half of 2004, because many enterprises increased their supplies of goods (mainly raw products and materials, products of mechanical engineering, and miscellaneous articles), to which higher imports duty applied. For this reason, the trade balance in April deteriorated mainly due to trade with China and Japan. Imports from China were up 55.4% y-o-y in April (with a share of 5.7%, China was the second biggest importer after Germany), and imports from Japan grew by 108.4%; the deficit of trade with either of the two states rose by CZK 3.0 bn y-o-y in April. However, there were also reverse impacts of the accession of the CR to the EU. Some enterprises delayed their exports and imports of goods until May, thus contributing to highly growing exports (+33.9% and imports (+32.1%) in May,
- the VAT Act . The uncertainty in the process of passing the Act at the beginning of 2004 made enterprises export as much as possible already in February, but mainly in March, prior to the forthcoming accession of the CR to the EU,
- preferential agreements (on the customs union or on free trade) that the EU concluded with a number of states, which ensured better terms and conditions of trading. Naturally, also the Czech Republic makes use of these agreements after joining the EU. At the same time, however, many agreements concluded previously between the CR and some states came out of force. To a certain extent, these facts affected also changes in external trade by group of countries after the accession of the CR to the EU.
Among other economic factors, affecting, with various intensity, external trade in the long term, are the following:
- external trade prices 6) . Together with CZK/EUR and CZK/USD exchange rates, the changes in export and import prices were affected by prices on the world market, particularly growing prices of raw materials 7) (e.g., petroleum world prices rose by 17.7% y-o-y, they peaked in May; metal world prices were up 33.8% y-o-y) and many food items (e.g., world prices of plant oils, coffee, wheat, maize and rice grew significantly). In January-May 2004, compared with the corresponding period of 2003, export prices went up faster than import prices (+3.2% and +0.9% on average, respectively). The January-May terms of trade reached 102.3 y-o-y and influenced favourably the trade gap at current prices (according to a rough estimate, they contributed to a decrease in external trade deficit by approx. CZK 13 bn in the 1st half of 2004),
- inward flows of foreign direct investment (FDI) , which became more massive in January-May 2004; net FDI inward flows in the period reached CZK 46.2 bn 8) . This investment was predominantly channelled into manufacturing (manufacture of parts and accessories of motor vehicles and manufacture of fabricated metal products). The main investors came from Japan, Canada, Germany, the Netherlands, France, and Belgium. Just CZ-NACE activities that received important volumes of FDI in the past, are now successfully export-oriented. This is proved by rising exports of transport equipment, telecommunication equipment, consumer electronics, and computers and data processing machines.
- exchange rates of CZK against EUR and against USD . Compared with January-June 2003, CZK depreciated by 2.7% against EUR on average and appreciated by 8.2% against USD in January-June 2004. The weaker koruna against EUR and the stronger koruna against USD affected exports favourably (if exporters buy raw materials in dollars, their costs may be lower, and they can sell their products abroad at lower EUR prices),
- higher industrial production and higher sales in industry . The favourable development of industrial production was fuelled by increasing volumes of non-domestic orders (and thus exports), which resulted especially from economic recovery in west-Europe. Direct export sales by industrial enterprises, whose y-o-y growth was 18.0% at current prices, accounted for nearly the half of total sales in industry, which rose by 13.3% at current prices in January-May 2004,
- growing investment demand (more money was invested not only in new machinery and equipment, but also in the refurbishing of equipment in existing plants, to meet the standards required by the EU) and a slower increase in consumer demand , compared with the past, which is apparent from a lower growth rate of retail sales, being 3.2% y-o-y at current prices in January-May 2004,
- slight economic recovery in the states of west Europe and rapid economic growth in the states of central Europe (in the 1st quarter of 2004, y-o-y growth of GDP was nearly 7% in Poland, 5.5% in Slovakia, and 4.2% in Hungary). The Euro-zone economy recorded in the 1st quarter of 2004 9) the highest growth rate over the last three years. In terms of y-o-y comparison, GDP grew by 1.3% (the highest increase since the 3rd quarter of 2001), and GDP in EU15 rose by 1.6%. Nevertheless, economic dynamics of the Euro-zone is still considerably lower than that of the United Kingdom (GDP up 3.4% y-o-y), the U.S.A. (+4.8%) and Japan (+4.7%). According to Eurostat, EU25 GDP grew by 1.7% y-o-y in the 1st quarter of 2004. Growing exports were caused in particular by economic recovery in the Czech Republic’s biggest trading partners of the Euro-zone – Germany, France and Italy.
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The above-mentioned factors affected the external trade balance. The lower y-o-y trade gap mentioned above (exports covered 98.6% of imports, the figure being 97.5% in the 1st half of 2003) was mainly due to high growth rates of exports and imports achieved after joining the EU – in January-April 2004, exports and imports rose by 15.5% and 15.1% y-o-y, respectively, and trade deficit was CZK 11.7 bn; in May-June 2004, exports and imports grew by 33.7% and 30.5% y-o-y, respectively. The fact that exports went up just more faster than imports after joining the EU than before led to equal trade balance after 30 April 2004 and thus to overall improvement of external trade deficit in the 1st half of 2004, compared to the 1st half of 2003.
1) All the data are given at current prices. The 2003 data are updated as at 18 May 2004 closing date, the January-March 2004 data are updated as at 19 May 2004 closing date, the April 2004 data are preliminary as at 19 May 2004 closing date, the May 2004 data are preliminary as at 28 June 2004 closing date, and the June 2004 data are preliminary as at 30 July 2004 closing date.
2) First estimate made by Eurostat of 22 July 2004.
3) China, North Korea, Cuba, Laos, Mongolia, and Vietnam.
4) The enlargement of EU15 to EU25 as at 1 May 2004 changed the structure of individual groupings of member states. Data for the corresponding period of 2003 (and of preceding years) are, therefore, converted to the membership after the accession of the Czech Republic to the European Union, which maintains data comparability.
5) See User Guide Intrastat-CZ, CZSO, Directorate General of Customs, June 2004 – V2.
6) Import and export price indices are published in the Czech Republic later than data on external trade of the CR.
7) The CZSO world price index of raw materials and food was 110.5 on average in 1st half of 2004 over 1st half of 2003.
8) According to preliminary data of the CNB from monthly balance of payments in May 2004 produced in compliance with methodology of the ECB.
9) According to second estimate by Eurostat of 15 July 2004.
