External trade - 4. quarter of 2004

External trade ¹ of the Czech Republic recorded in 2004 the best results over the last ten years. External trade turnover reached an all-time high, being 3.6 times bigger than in 1994, and trade gap was the lowest in the last ten years (under significantly higher exports and imports than in 1994). ²

 

            External trade in 2004 was in particular characterised by:

 

            - high growth rates of exports and imports, resulting in record-breaking levels of both in the course of existence of the Czech Republic. Compared with the year 2003, exports grew by 23.8%, which was the highest y-o-y increase between 1994 and 2004, and imports rose by 19.2%. The growth rates of exports and imports contributed to a y-o-y rise in external trade turnover by CZK 602.4 billion (+21.4%), which thus reached CZK 3 414.0 billion. Of a positive effect on external trade dynamics in 2004 was particularly the development after the accession of the Czech Republic to the European Union when the average increases in exports and imports were 27.4% and 20.8%, respectively, in May to December (as against 16.3% and 15.8%, respectively, in January to April).

The above-mentioned growth rates of external trade are good also if compared with external trade dynamics of the EU25, which is documented by data of Eurostat of 20 January 2005 available for January to October 2004. In this period, EUR-based EU25 exports grew by 7.1% (EU15 +6.2%) and EU25 imports by 7.4% (EU15 +6.6%), all on average y-o-y. On average, 10 countries that became new EU member states on 1 May 2004 exported by 20.0% more and imported by 17.4% more y-o-y. In the same period, these countries accounted for 7.0% and 8.2% of total EU25 exports and total EU25 imports, respectively;

- a sharp decrease in trade gap . External trade deficit was by CZK 49.2 billion lower than in 2003 and reached CZK 20.6 billion. With the exception of March and April, all months of 2004 saw higher dynamics of exports than imports. The external trade deficit has been decreasing since 2001; the trade balance in 2000 was still passive by CZK 120.8 billion. A considerable improvement in the external trade balance in 2004 occurred after the accession of the Czech Republic to the European Union ; deficit in January to April was by only CZK 0.4 billion lower y-o-y, whereas in May to December was lower by CZK 48.8 billion. In terms of groups of countries ³ , this improvement was mainly concentrated on the EU25, and in terms of commodity structure exclusively on machinery and transport equipment;

- changes in orientation on groups of countries, which showed themselves by a slightly weakening proportion of developed market economies in total exports (91.6%) and their higher position in total imports (82.0%). A positive feature is a higher proportion of developing economies, European transition economies and CIS⁴ countries in total exports. The position of developing economies and CIS countries in imports weakened;

- movements in commodity structure where changes continued towards stronger representation of sophisticated products in exports, in particular machinery and transport equipment. Surplus of trade in these products rose by CZK 69.4 billion, while the other SITC sections reported either higher y-o-y deficit or lower y-o-y surplus. The highest deficit was again recorded in chemicals and related products, but y-o-y increase in deficit of external trade in these products slowed down due to the growth rate of exports.

 

External trade 2004 before and after the accession of the Czech Republic to the European Union was affected by a number of factors (administrative and economic), which were either related to the involvement of the CR in the large market of the European Union (influencing external trade either non-recurrently or causing fixed changes) or have been affecting external trade with various intensity for a long time. Among the most important factors were in particular the following:

- change in customs tariffs. Customs duty related to the EU member states was removed after the accession of the CR to the EU, which substantially improved trading conditions with the EU member states; on the other hand, other customs duties related to third countries were applied. The EU imposes higher duty or antidumping measures particularly on goods coming from non-European countries;

- common external trade policy of the EU member states towards non-EU states, which opened new opportunities for external trade of the CR. In addition to general trading rules in the framework of the WTO, the EU has agreements on zones of free trade or customs union with a number of states or with some of the groups of states. At the same time, however, many agreements concluded previously between the CR and some states came out of force;

- external trade prices⁵. Changes in export and import prices in 2004 reflect, together with the trend of exchange rates of CZK against EUR and USD, also the development of world prices⁶, in particular growing prices of raw materials and fuels (e.g. world prices of metals rose by 31.2% y-o-y, oil Brent prices grew by 21.5% – the highest y-o-y increase occurred in October – 70.3%), many items of food (e.g. world prices of vegetable oils, some kinds of coffee and rice grew significantly) and timber;

- exchange rates of CZK against EUR and USD. Compared with 2003, CZK weakened by 0.2% on average against EUR and strengthened by 9.8% on average against USD, all in 2004;

- FDI inward flows. It is just manufacturing where important part of FDI was channelled in the past (parts and accessories of motor vehicles, transport means, telecommunication equipment, consumer electronics and computers) that yields growing exports. FDI inward flows to the CR continued also in 2004 and strengthened y-o-y. Net FDI inward flows reached CZK 104.0 billion in January to November 2004⁷. Roughly three-quarters of this sum came from investors within the EU25 (Germany, Netherlands, Austria and Slovakia), further from Japan and the United States;

            - domestic consumer demand that grew slower than in 2003. This is proved by retail sales, which rose by only 1.4% y-o-y at constant prices in January to November 2004. Domestic investment demand increased – particularly imports of machinery and equipment. Investments were predominantly channelled into new machinery and equipment;

            - rise in industrial production and higher sales in industry. The y-o-y industrial production index reached 110.0 in January to November 2004 (of which 110.9 in manufacturing), sales in industry (at current prices) were by 14.4% higher y-o-y and direct export sales by 19.7%;

            - external environment. A slight recovery of world and European economies, which boosted the volume of industrial orders from abroad. According to Eurostat⁸, EU25 GDP grew by 2.1% y-o-y in the 3rd quarter of 2004, EU15 GDP by 2.1% and Euro-zone GDP by 1.8%. However, some indications of economic slowdown started to appear in the Euro-zone in the 4th quarter.

           

A close look at the development of external trade in 2004, in comparison to 2003, reveals that:

 

            - exports reached CZK 1 696.7 billion and grew by CZK 325.8 billion; they made up 54.1% of the total growth of external trade turnover. However, growth of exports to the main groups of countries was differentiated. Highly above-the-average growth rates were recorded for exports to CIS countries, developing economies and European transition economies; nevertheless, these groups of countries accounted for only less than 8% of the total absolute rise in exports. The problem of low exports to other states⁹ sharpened because their y-o-y increase amounted to a mere 1.8% (due to stagnating exports to China). Slightly below-the-average dynamics of exports to developed market economies (+23.1%) were mainly affected by exports to the EFTA states. While exports to the EU25 were slightly below the average (+23.3%), they made up nearly 85% of the absolute growth of total exports (CZK +275.8 billion) to these states. Above-the-average dynamics were reported particularly for exports to the new EU member states (33.1%, as against 21.0% to the EU15). The absolute growth of exports to the EU25 was due to higher exports to Germany (CZK +109.8 billion) and to Slovakia, Poland, Hungary, Austria, Netherlands, Belgium, France and Italy (CZK +141.8 billion in total to these states). An above-the-average growth rate (24.8%) was recorded for exports to other developed market economies (in particular to Japan and Canada). Higher exports to CIS countries were affected by higher exports to Russia (CZK +7.9 billion), increase in exports to developing economies was due to higher exports to Asian developing economies (CZK +9.2 billion, mainly to India and the United Arab Emirates) and rise in exports to European transition economies reflected higher exports to Romania and Bulgaria;

            - imports stood at CZK 1 717.3 billion and were higher by CZK 276.6 billion; their share in the total growth of external trade turnover was 45.9%. With the exception of developing economies (-0.3%), imports from all the main groups of countries increased. The growth rates varied. Above-the-average dynamics were reported for imports from developed market economies, especially due to growing imports (+36.2%) from other developed market economies (mainly from Japan +67.6%) and from the EU25 (+20.5%), and for imports from European transition economies (+36.2%). Below-the-average growth rates were observed in imports from other states (+17.3%) and from CIS countries (+14.3%). An increase of CZK 211.0 billion in imports from the EU25 accounted for more than 76% (of which 55% the EU15 and 21% the new EU member states) of the growth of total imports. The absolute increase in imports from the EU25 resulted from higher imports from Germany (CZK +72.4 billion) and from Poland, Slovakia, Netherlands, United Kingdom and Austria (CZK +74.0 billion in total from these states). Among European transition economies, imports grew particularly from Romania and Bulgaria, among CIS countries from the Ukraine, Kazakhstan and Russia, and among other states from China. Especially a decrease in imports from Malaysia affected unfavourably imports from developing economies;

            - trade gap decreased by more than CZK 49 billion due to growth rate of exports being by 4.6 percentage points higher than that of imports. The coverage of imports by exports made up 98.8%, as against 95.2% in 2003. The external trade balance improved with all the main groups of countries, except for other states where trade deficit reached CZK 82.3 billion and rose by CZK 13.0 billion y-o-y. Deficit of trade with developing economies was CZK 52.6 billion and was by CZK 13.9 billion lower y-o-y; deficit of trade with CIS countries reached CZK 57.5 billion, compared to CZK 58.4 billion in 2003. Surplus grew y-o-y in trade with European transition economies (from CZK 20.5 billion to CZK 27.0 billion). The biggest improvement in trade balance was concentrated on developed market economies or better to say on the EU25, because deficit of trade with other developed market economies deteriorated by more than CZK 20 billion. The surplus of external trade with the EU25 reached CZK 219.3 billion and rose by 64.8 billion y-o-y (of which by CZK 48.8 billion with the EU15 and by CZK 16.0 billion with the new EU member states). The highest increases were recorded in surplus of trade with Germany (CZK +37.4 billion), Slovakia (CZK +17.1 billion), Hungary, Belgium and Austria (all three CZK +27.1 billion). From among individual states, high deficit was observed in external trade with China (CZK 80.8 billion) and Japan (CZK 49.2 billion) where y-o-y deterioration by CZK 12.4 billion and CZK 20.9 billion occurred, respectively, and with Russia (CZK 46.7 billion) where deficit decreased by CZK 2.7 billion;

- in commodity structure , all SITC sections saw higher exports and imports, but the growth rates varied. The development of commodity structure in 2004, compared to 2003, showed the following features:

. machinery and transport equipment (SITC 7) further strengthened their dominant position in total exports (from 50.1% to 50.5%). An above-the-average growth of their exports (+24.6%, i.e. by CZK 169.2 billion) determined significantly the growth of total exports (this increase accounted for nearly 52% of the total absolute rise in exports). Imports of machinery and transport equipment recorded below-the-average dynamics (+16.2%) and thus a fall in their share in total imports (from 42.8% to 41.7%), but their absolute increase was among the highest (contributing by nearly CZK 100 billion to a rise in total imports). Development of external trade in machinery and transport equipment raised the surplus from CZK 70.9 billion to CZK 140.3 billion y-o-y, i.e. by CZK 69.4 billion. This increase compensated for deteriorated balances in all the other SITC sections (by CZK 20.2 billion in total) and, at the same time, with CZK 49.2 billion contributed to a y–o-y improvement of the trade gap. Higher surplus was achieved mainly in parts and accessories of motor vehicles (CZK +16.6 billion), passenger cars and other vehicles for transport of persons (CZK +12.7 billion) and equipment for automated data processing (CZK +10.0 billion);

. manufactured goods classified chiefly by material (SITC 6) retained the second most important position in the total structure of external trade, but below-the-average dynamics of exports led to their weakening (from 23.1% to 22.8%) in total exports and above-the-average growth of imports to their strengthening (from 20.1% to 21.0%) in total imports. The surplus of trade in these products slightly dropped y-o-y (from CZK 26.6 billion to CZK 26.3 billion);

. miscellaneous manufactured articles and commodities and transactions not classified elsewhere in the SITC (SITC 8+9), under below-the-average dynamics of exports (+18.5%) and above-the-average growth of imports (+23.7%), decreased surplus from CZK 10.2 billion to CZK 4.2 billion;

. chemicals and related products (SITC 5) recorded the highest relative growth of exports (+30.4%) among all the SITC sections and below-the-average growth rate of imports. The deficit of external trade in these products rose by CZK 2.6 billion y-o-y and was again among the highest deficits in all SITC sections (CZK 86.4 billion), but this y-o-y rise was not as high as in the preceding years (e.g. CZK 10.1 billion in 2003 y-o-y) thanks to higher exports;

. crude materials, inedible, and mineral fuels (SITC 2+3) raised their deficit from CZK 70.9 billion to CZK 77.6 billion y-o-y. This development was inter alia strongly determined by export and import prices of mineral fuels, lubricants and related materials, which grew by 19.9% and 5.9% y-o-y, respectively, in the first 11 months of 2004;

. agricultural and food crude materials and products (SITC 0+1+4) reported y-o-y increase in deficit from CZK 22.8 billion to CZK 27.4 billion under above-the-average dynamics of both exports and imports.

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¹All the data are at current prices. The 2003 data are final referring to 27 August 2004 closing date, the January-September 2004 data are updated referring to 29 November 2004 closing date, the October 2004 data are updated referring to 29 November 2004 closing date, the November 2004 data are preliminary referring to 29 December 2004 closing date, and the December 2004 data are preliminary referring to 28 January 2005 closing date.

²Trade gap was CZK 4.5 billion in 1993 and CZK 39.5 billion in 1994. The biggest deficit in the last decade ran in 1996 when imports exceeded exports by nearly CZK 153 billion.

³The enlargement of the EU15 to the EU25 as from 1 May 2004 caused a movement of member states among individual groups of countries. The data for the corresponding period of 2003 (and of preceding years) related to individual groups of countries are, therefore, converted to the membership valid after the accession of the Czech Republic to the European Union, which maintains the data comparability.

⁴Commonwealth of Independent States.

⁵Import and export price indices are published in the CR a month later than data on external trade of the CR.

⁶The CZSO world price index of raw materials and food was 118.9 on average in 2004 over 2003.

⁷According to preliminary data of the CNB from November 2004 monthly balance of payments compiled in compliance with methodology of the ECB.

⁸The first estimate of the 3rd quarter of 2004 referring to 1 December 2004.

⁹China, North Korea, Cuba, Laos, Mongolia, and Vietnam.