monetary policy, inflation, balance of payments, investment and consumer demand, trade balance
In 2004, the Czech economy continued in solid growth. Slight acceleration of economic growth was driven in particular by strong investment demand and improving performance of the foreign trade with goods. On the other hand, due to slowdown in real wages, consumer demand weakened. 2004 was the year of turnover in foreign trade which has reported the best results since 1994. The EU entry was an important factor behind the improvement of trade balance – the foreign trade exchange significantly accelerated after the EU accession. The EU entry opened new chances to the exporters, especially small and medium-sized companies could fully use the advantage of the Single Market. With the trade balance improving, the reason for permanently high current account deficit is the growing deficit of income balance as a consequence of strong FDI inflow. January and May changes in the Value Added Tax brought a temporary speed-up of consumer prices. After the absorption of this increase, since the last quarter of 2004, headline inflation has been declining. Similar to previous years, inflation fell under the CNB target corridor. Record high world prices of oil and metals caused a strong increase of industrial producer prices, however, strong competition between both producers and traders has prevented the spillover to consumer prices.
labour market, foreign trade, external balance, economic growth, consumer and producer prices
2004, which was also the year of EU entry, was quite successful for the Czech economy. Economic growth accelerated, driven in particular by the investment demand and exports. After 10 years of permanent deficits, the trade balance deficit diminished significantly. The effects of EU entry, which opened new chances to the exporters, accompanied the positive impact of FDI inflows from the past. Due to acceleration of exports, industrial output registered a record high growth within the last decade. Accelerating economic growth did not provoke inflationary pressures. Two waves of VAT increase (in January and May) were absorbed until the end of the year. A strong increase in PPI resulting from high world prices of oil and gas had no spillover effect to consumer prices due to strong competition between both the producers and traders. At the beginning of 2005, economic growth continued with the same pace as in 2004, driven by investment demand and exports. Consumer demand kept on weakening, consumption of households registered the weakest growth since the end of 1998. Both the industrial production and exports reported a slowdown due to sluggish economic activity in the euro area, especially in Germany.
trade balance, monetary policy, investment and consumer demand, inflation, balance of payments
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