Czech Republic Business Forecast Q1 2007

Content

• Executive Summary
  • Focus On 2007
• Chapter 1: Political Outlook
  • SWOT Analysis
  • BMI Political Risk Ratings
  • Czech politics remain in stasis, as the two main parties begin negotiations on forming a government for the second
  • time An agreement would enable the swift appointment of a new cabinet, although the vastly divergent ideologies
  • of the leftist and rightist parties would leave any alliance vulnerable to bickering and thus inherently unstable
  • Early elections therefore continue to be the most sustainable solution to the current stalemate
  • Domestic Political Outlook
  • Let's Go Round Again
• Chapter 2: Economic Outlook
  • SWOT Analysis
  • BMI Economic Risk Ratings
  • Introduction
  • Euro Slippage Made Official
  • A progress report by the European Central Bank has underscored the current problems in euro convergence in EU-10
  • We do not expect the Czech Republic to enter the single currency union until 2012; bringing the fiscal deficit into
  • line with Maastricht criteria will be the main challenge for a new government, which is likely have a limited mandate
  • We retain our core view that ongoing convergence will aid long-term macroeconomic stability, making the actual
  • date of eurozone entry less significant
  • Economic Activity
  • GDP Growth: Easing, But Still Robust
  • GDP growth eased to 58% y-o-y in Q306; with a downward revision of data from Q1 and Q2 This has prompted us
  • to lower our end-2006 forecast slightly Going forward, we expect a trend of accelerating domestic demand and
  • falling net exports, with the economy registering very solid, if unspectacular, growth
  • Table: Growth And Output
  • Table: Consolidated Budget
  • Fiscal Policy
  • The Time Is Now
  • We see a widening of the fiscal deficit in 2007, but a decline towards 30% in the following years However,
  • the speed at which this occurs will depend greatly upon the policies of the new government, which remain unknown
  • at this point
  • Monetary Policy
  • How Significant Is The Case For Tightening?
  • Strong appreciation of the Czech koruna has come on the back of a solid domestic economic performance
  • However, the central bank is now trying to talk down the unit, and is likely to hold off from hiking interest rates just
  • yet That is not to say, though, that it will not do so later in 2007 The market, although it has become more dovish in
  • recent months, still maintains a slight medium term tightening bias
  • Table: Inflation And Exchange Rates
  • Balance Of Payments
  • Worsening, But No Major Risks
  • The current account deficit has expanded rather dramatically in the first nine months of the year, reversing to some
  • extent the strong gains made in 2005 FDI inflows are also receding on those recorded that year Yet profit repatriation
  • from foreign companies is no major cause for concern, and our expectation of robust export growth and still strong
  • financial coverage should minimise risks to economic stability going forward
  • Table: Balance Of Payments
  • Regional Outlook
  • A Good Year For The Eurozone: The Domino Effect
  • Eurozone growth made headlines in 2006, with the regional economy set to have expanded at its fastest pace
  • since the start of the decade Here we look at the positive impact of strong eurozone performance on the
  • Central European (CE4) states: the Czech Republic, Poland, Hungary and Slovakia, and assess the outlook for 2007
• Chapter 3: Special Report
  • BMI Sovereign Risk Ratings
  • What And Where Are The Risks?
  • Table: BMI Sovereign RIsk Ratings
  • Emerging Europe
  • Table: Emerging Europe Sovereign Ratings - Evolution of Ability to Pay
  • Table: Emerging Europe Sovereign Ratings - Evolution of Willingness to Pay
• Chapter 4: Business Environment
  • SWOT Analysis
  • BMI Business Environment Risk Ratings
  • Legal Framework
  • Labour Force
  • Table: Employment Indicators
  • Table: Demographic Indicators (2005)
  • Foreign Investment Policy
  • Table: Emerging Europe, Annual FDI Inflows
  • Table: Czech Republic, Annual FDI Inflows
  • Foreign Trade Regime
  • Table: Top Export Destinations, US$mn
  • Table: VALUE OF EXPORTS BY CATEGORY
  • Tax Regime
• Chapter 5: Key Sectors
  • Information Technology
  • Market Overview
  • With the IT market growing at a rate that confirms its status as one of the main drivers of the economy as a whole,
  • and the market for PCs continuing to progress rapidly, the Czech market remains an important focus for vendors
  • in a region where growth is still outstripping Western Europe BMI expects the total size of the IT market to increase
  • from US$32bn in 2005 to around US$47bn in 2010, with slower growth in hardware, and falling prices,
  • compensated for by new demand for solutions and services
  • Table: Czech Republic IT Historical Data And Forecasts
  • Tourism
  • Market Overview
  • BMI maintains its forecast for visitor arrivals to reach near 105mn in 2006, up around 4% y-o-y This is in the wake
  • of a recovery in visitor numbers in 2005, with growth of around 5% y-o-y, compared with only 1% y-o-y in 2004 and
  • declines in arrivals in previous years Over the remainder of the forecast period, however, BMI anticipates
  • somewhat lower growth in foreign visitor arrivals, with numbers expected to reach around 121mn in 2010
  • Table: Czech Tourism - Historical Data & Forecasts
  • Table: Czech Travel Industry - Historical Data & Forecasts
  • Table: Structure of Czech Accommodation Market