External trade - 4. quarter of 2005

External trade ¹ in 2005 saw the best results in the history of the Czech Republic. External trade turnover reached an all-time high and was 4.4 times higher than in 1993; exports were for the first time higher than imports and external trade balance recorded the first surplus. In 2005, compared to 1993, exports per capita ² more than quadrupled, the share of the Czech Republic in the world exports significantly increased ³ .

 In the year 2005, in comparison to 2004, external trade was accompanied by:

- a turnover increase of 6.6%, i.e. CZK 229.3 billion. External trade turnover reached CZK 3 701.0 billion, exports having a prevailing share (64.9%) in the year-on-year increase, the share of imports was 35.1%. Exports grew by 8.6%, i.e. CZK 148.8 billion year-on-year and imports by 4.6%, i.e. CZK 80.5 billion. Various developments in individual quarters of the year are behind the overall dynamics of exports and imports in 2005. Year-on-year, in the first quarter exports were up by 16.8% and imports up by 10.0%, in the second quarter exports up by 4.2% and imports down by 0.8%, in the third quarter exports up by 8.1% and imports up by 6.0%, and in the fourth quarter exports up by 6.8% and imports up by 4.4%. In all months of 2005 the dynamics of exports were faster than dynamics of imports. If converted to EUR and USD, external trade in 2005 grew more. Due to appreciation of CZK against these currencies, exports and imports in EUR rose by 16.3% and 12.0% respectively and exports and imports in USD increased by 16.3% and 11.9% respectively;

The development of external trade was commendable also in comparison to that of the EU member states as a whole. Data released by Eurostat on 19 January 2006 available for January-October 2005 show that EU25 exports and imports in EUR were up by 6.6% (EU15 +5.9%) and 7.7% (EU15 +7.4%) year-on-year respectively on average in this period. Exports and imports of 10 states which became members of the EU from 1 May 2004 were by 15.7% and 11.6% respectively higher year-on-year on average. In the same period these states accounted for 7.7% of the total EU25 exports and 8.5% of the total EU25 imports. In January-October 2005 external trade of the EU25 reached a deficit of EUR 7.0 billion (of which the EU15 surplus EUR 14.0 billion and the 10 new member states deficit EUR 21.0 billion). The Czech Republic recorded an external trade surplus as the only one among the new EU member states.

- a trade balance⁴ improvement of CZK 68.3 billion. In 2005 external trade reached a surplus of CZK 41.9 billion (2.2% of exports) as against deficit CZK 26.4 billion in 2004. However, behind the active balance were gradually decreasing surpluses in the first, second and third quarters of 2005 (CZK 27.6 billion, CZK 14.3 billion and CZK 0.3 billion respectively) and a slight deficit in the fourth quarter (CZK 0.3 billion). The trade balance improvement was focused territorially on the EU25 states (CZK 56.8 billion), in terms of the commodity structure on machinery and transport equipment (CZK 82.3 billion).

External trade balance in 2005 was influenced by both positive and negative effects.

Among the positive effects were in particular:

- the continuing growth of industrial production. In January-November 2005 the industrial production index reached 105.6 and direct export sales at current prices were by 7.0% higher year-on-year, of which in manufacturing by 7.1%. The growing output of manufacturing⁵ (mainly of the new plants built with the help of foreign investments) considerably participated in the year-on-year growth of exports. In 2005, compared to 2004, manufacturing exported by CZK 135.7 billion more and its share in the growth of total exports was 91.2%. The surplus of external trade in products of manufacturing reached CZK 152.3 billion in 2005 and was by CZK 95.6 billion higher than in 2004.

The most important item of manufacturing exports were road vehicles whose share in the total exports was 16.2% in 2005 compared to 14.9% in 2004, of which mainly motor cars (share 7.9% compared to 6.9%) and parts and accessories of the motor vehicles (share 7.2% compared to 7.0%). Motor cars made up more than one-fifth and parts and accessories of the motor vehicles 9.3% of the total increase in exports. The surplus of external trade in motor cars grew from CZK 63.6 billion in 2004 to CZK 102.6 billion in 2005 and in parts and accessories of the motor vehicles from CZK 55.5 billion to CZK 57.7 billion. Among the products of mechanical engineering, a high increase was recorded for example for exports of ‘office machines and automatic data-processing machines’ (+21.8%) which raised the surplus of these products by CZK 16.3 billion. Of a boosting influence on exports was the growth of the ‘manufacture of chemicals, chemical products and man-made fibres’, ‘manufacture of rubber and plastic products’ and ‘manufacture and repair of machinery and equipment’, which at the same time reduced imports of these products. This for example lowered the deficit of trade in ‘medicinal and pharmaceutical products’, ‘plastics in non-primary forms’ and ‘chemical materials and products’ (in total by CZK 5.1 billion) and raised the surplus of ‘rubber manufactures’ by CZK 1.9 billion and partly of ‘machinery specialised for particular industries’ and ‘general industrial machinery and equipment’ (by CZK 30.2 billion);

- foreign direct investment inward flows in the past years. The output of plants built with the help of foreign direct investment (FDI) raised the output of many industries of manufacturing. This output (as mentioned above) has an important share in the current favourable development of exports of goods and opens the way for the domestic producers to participate in subcontracts and thus reduces the need of imports. It holds in particular for the increasing output of the new plants of the motorcar industry, of the ‘manufacture of electrical machinery and apparatus’, ‘manufacture of rubber and plastic products’ and ‘manufacture of basic metals and fabricated metal products’. In 2005 FDI inward flows continued and in January-November (according to data of the CNB) reached CZK 251.4 billion. However, this figure was affected by the sale of state-owned shares in Telecom, Unipetrol and Vítkovice Steel to foreign investors;

- lower imports of ‘machinery specialized for particular industries’, ‘metalworking machinery’ and ‘general industrial machinery and equipment’ in consequence of a higher domestic production, slowdown in investment activity and changes in the structure of domestic investment demand. Imports of these items were by CZK 14.1 billion lower year-on-year;

- a significant improvement of the external trade balance with the states where the trade balance was highly passive in the previous period, for example with some of the EU25 states (especially France and Italy), the United States and Japan.

Among the negative effects on the external trade balance were in particular:

            - export and import prices⁶. In January-November 2005 export prices dropped by 1.3% and import prices increased by 0.1%, all year-on-year. The fluctuation of external trade prices was mainly influenced by the development of prices on the world market and by the strengthening of CZK against EUR and USD. In January-December 2005, compared to the corresponding period of 2004, CZK appreciated by 7.1% against EUR on average and by 7.3% against USD⁷ on average and the world prices of industrial crude materials and food grew by 38.3% ⁸ in total. This growth was heavily influenced by the prices of petroleum and natural gas on the world market; they rose by 46.3% year-on-year. Just the higher prices of petroleum and natural gas had a negative impact on the trade balance and considerably decreased the surplus of the overall trade balance. In 2005 external trade deficit of ‘petroleum, petroleum products and related materials’ reached CZK 93.2 billion (CZK 64.2 billion in 2004) and of ‘gas, natural and manufactured’ CZK 48.1 billion (CZK 32.2 billion in 2004). Of a predominating influence (CZK 21.6 billion) on the increase in the trade deficit of ‘petroleum, petroleum products and related materials’ was the growth of prices; an increase of CZK 7.4 billion was due to a higher commodity volume. The rise in the deficit of ‘gas, natural and manufactured’ was affected by the growth of prices (CZK 14.0 billion) and by a higher commodity volume (CZK 1.9 billion). The unfavourable impact of the prices of mineral fuels was cushioned by the strengthening of CZK against USD;

- import of army fighters Jas-Gripen worth CZK 10.3 billion;

- higher imports of some kinds of consumer goods. A number of food products and miscellaneous manufactured articles were increasingly imported to meet the demand of the internal market. In 2005 significant increases in imports were recorded for example for ‘meat and meat preparations’, ‘dairy products and birds eggs’, ‘sugars, sugar preparations and honey’ and ‘tobacco and tobacco manufactures’ (in total CZK +6.1 billion), ‘furniture and parts thereof’, ‘articles of apparel and clothing accessories’ and ‘footwear’ (in total CZK +5.9 billion);

- economic situation in the world and particularly in the states of the Euro-zone where economic growth was still low mainly due to the economic situation in Germany. As estimated by the Federal Statistical Office of Germany, the growth of the German economy slowed down to 0.9% in 2005 from 1.6% in 2004. The position of Germany, which is the decisive external trade partner of the Czech Republic, weakened from 33.9% of the total external trade turnover of the Czech Republic in 2005 to 31.6% in 2004;

- a further increase in high trade deficit with China (from CZK 84.0 billion to CZK 87.4 billion) and mainly with Russia (from CZK 46.7 billion to CZK 69.1 billion).

A closer look at the external trade development in 2005 shows that, in terms of year-on-year comparison:

- exports grew (but at various rates) to all the main groups of countries. A high relative growth was apparent for exports to CIS⁹ countries, developing economies and European transition economies and led to a strengthened position of these territories in total exports (from 7.9% to 9.1%). Exports to other states¹⁰ grew insignificantly. The highest actual increase in exports (albeit the rate of growth was below the average) was observed for exports to developed market economies (CZK 113.5 billion), or to the EU25 states (CZK 95.7 billion). An above-the-average growth was reported for exports to other developed market economies (particularly to Japan and the United States). The total increase in exports to the EU25 states reflected the considerably different dynamics of exports to individual states. Exports to a prevailing number of the EU25 states grew (especially to France, Slovakia, Poland and Spain); decreases were registered inter alia for exports to Germany and Austria. In relation to further states, worth mentioning are higher exports to Russia, the Ukraine and Romania;

- imports were higher from developed market economies, CIS countries, European transition economies and other states, and dropped from developing economies. The growth of imports from developed market economies by CZK 38.5 billion was mainly affected by higher imports from the EU25 states by CZK 38.9 billion, imports from other developed market economies fell by CZK 0.4 billion (especially imports from the United States and Japan). The growth of imports from the EU25 states was below the average and was affected by different imports from individual states. Highly above-the-average increases were recorded particularly for imports from Sweden and the Netherlands and also from Hungary and Poland, decreases were observed inter alia for imports from the United Kingdom, Italy, Germany and France. Among further states, worth mentioning is the growth of imports from China and in particular from Russia and Romania;

- the external trade surplus was a result of higher surplus with developed market economies by CZK 75.0 billion and with European transition economies by CZK 3.6 billion and of lower deficit with developing economies by CZK 18.1 billion. External trade deficit with the CIS countries grew by CZK 24.9 billion and with other states by CZK 3.7 billion. The biggest surplus was concentrated on developed market economies (CZK 220.8 billion), or the EU25 states (CZK 281.2 billion), because the balance with other developed market economies was passive (CZK 60.4 billion). The surplus of trade with the EU25 states was by CZK 56.8 billion higher year-on-year. The highest increase occurred in surplus with Slovakia (by CZK 12.3 billion), the United Kingdom (by CZK 9.3 billion), Poland (by CZK 5.0 billion) and Germany (by CZK 4.8 billion); a significant rise in deficit was observed in trade with Italy (by CZK 10.6 billion) and a turn of the deficit into a surplus improved the trade balance with France by CZK 20.8 billion. Considerable deterioration was recorded for the surplus of trade with the Netherlands (by CZK 23.8 billion), Austria (by CZK 3.6 billion) and Sweden (by CZK 2.4 billion). As to further states, a high deficit was registered in trade with China and Russia (deterioration by CZK 3.4 billion and CZK 22.4 billion year-on-year respectively). Deficit in trade with Japan decreased by CZK 3.7 billion and deficit with the United States CZK 15.5 billion in 2004 turned into a surplus of CZK 0.6 billion in 2005.
 
Changes in the commodity structure of external trade in 2005, compared to 2004, were noticeable in:
 
- machinery and transport equipment by higher exports by 9.5%, i.e. CZK 83.0 billion, which made up 55.8% of the total exports increase. Imports of machinery and transport equipment nearly stagnated (+0.1%). Trade surplus of machinery and transport equipment reached CZK 218.5 billion and was by CZK 82.3 billion higher year-on-year;
           
- manufactured goods classified chiefly by material by below-the-average dynamics of exports (+4.6%) and imports (+3.1%). Surplus of external trade in manufactured goods classified chiefly by material grew by CZK 6.8 billion year-on-year;
           
- miscellaneous manufactured articles, commodities and transactions not classified elsewhere in the SITC by a rise in surplus of CZK 5.8 billion year-on-year due to exports growing faster (+6.1%) than imports (+3.3%);
 
- chemicals and related products by a high relative growth of exports (+13.3%) under a below-the-average rise in imports (+4.4%). The trade deficit of this SITC section dropped by CZK 5.3 billion year-on-year, but it still stood at CZK 85.6 billion;
           
- crude materials, inedible, and mineral fuels by the highest growth (due to prices of mineral fuels) of imports (+25.5%, i.e. CZK 44.7 billion) among all sections of the SITC under a below-the-average (+6.8%) rise in exports. This trend led to deterioration of deficit of this SITC section by CZK 38.0 billion year-on-year;
           
- agricultural and food crude materials and products by the highest growth rate of exports among all sections of the SITC (+26.9%) under an above-the-average rise in imports (+10.7%). A higher growth of exports than imports showed itself in a year-on-year decrease of deficit by CZK 6.1 billion.

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¹ All the data are at current prices. Data for 2004 are final referring to 26 August 2005 closing day, data for January-September 2005 are updated referring to 29 November 2005 closing day, for October 2005 preliminary referring to 29 November 2005, for November 2005 preliminary referring to 29 December 2005 closing day, and for December 2005 preliminary referring to 27 January 2006 closing day.
² In 2005 exports per capita reached (according to a preliminary calculation) CZK 182.9 thousand (USD 7 638) as against CZK 40.8 thousand in 1993 (USD 1 400).
³ Compared to 1993, the share more than doubled and (according to an estimate) stood at 0.74 %.
⁴ Development of the external trade balance from the formation of the Czech Republic to 2005 (in CZK billion):

Year	1993	1994	1995	1996	1997	1998	1999	2000	2001	2002	2003	2004	2005
Trade balance	- 4.5	- 39.5	- 99.6	-153.0	-150.4	-80.2	-64.4	-120.8	-117.4	-70.8	-69.8	-26.4	41.9
Y-o-y changes		-35.0	-60.1	-53.4	2.6	70.2	15.8	-56.4	3.4	46.6	1.0	43.4	68.3

⁵ Items CZ-CPA15 to CZ-CPA36.
⁶ Import and export price indices in the CR are published later than data on external trade of the CR.
⁷ In January-December, the weakest CZK against EUR was in 1999 (EUR 1 = CZK 36.882) and against USD in 2000 (USD 1 = CZK 38.590).
⁸ See World Price Indices of Raw Materials and Food in December 2005, CZSO, January 2006.
⁹ The Commonwealth of Independent States.
¹⁰ China, North Korea, Cuba, Laos, Mongolia and Vietnam.