Czech Republic Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	1745-0535
Product Code	BMI02052

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Summary

The convergence Game The Czech Republic is amongst the central and eastern Europe states most closely converged with the eurozone. Real GDP per capita in purchasing power parity terms is now 8 % of the EU- 7 average. We expect further progress over the coming years, and, even though the country is on the slow track to adopting the euro, are generally enthused about the economic prospects of the Czech Republic. The government has initiated a number of economic reforms, but its wafer-thin parliamentary majority is not conducive of a radical agenda, especially at a time in which a number of contentious non-economic issues are high up on the agenda. The arguments over participation in the US missile defence shield, the church property law and anti-discrimination legislation could yet bring down the administration, and prompt early elections, or at least a re-jigged coalition.

The most high-profile political issue facing the Czech Republic remains the US missile defence shield. Plans to base a radar station in the country have the support of under a fifth of the population, and it will require a significant concession by the ruling Civic Platform Party (ODS) to its partners to get it through parliament. With the opinion polls putting the opposition firmly ahead, this may prove to be a major challenge for Prime Minister Mirek Topalanek and his cabinet. His chance of forming a new government after the next scheduled elections in two years time is looking increasingly limited.

The labour market is no longer supportive of rapid growth. A major driver of the strong inward investment seen over the past five years has been the large pool of educated and highly skilled workers available in the Czech economy. This is drying up fast, with unemployment down to . % in April, and the number of registered unemployed falling to 16,118. This is down from 6.8% just a year ago and over 10% as recently as the start of 00 . Emerging labour shortages in key sectors is demonstrated well by the % growth in job vacancies to 1 , 67 in April 008 from less than 100,000 at the start of 007.

The government has scrapped FDI incentives for the manufacturing industry. This has come on the back of declining unemployment and the resulting reduced scope for large-scale investments.

Between 2000 and 2006, 366 projects were granted incentives worth CZK139bn (US$8.75bn), and the 36 projects currently benefiting from the scheme are due to receive CZK13.5bn by 2011.

The current incentive package is being replaced by tax breaks targeted at the technology sector, which are not only less labour intensive, but will help move the Czech Republic into higher value added industries.

Content

Executive Summary5
The convergence Game
Chapter 1: political Outlook6
- SWOT Analysis
- BMI political risk ratings
- Domestic politics8
- how long can The ODS Survive?
- The Czech political scene is currently going through a period of fractiousness. The governing coalition lacks a firm
- parliamentary majority, and there are risks to policy continuity and government stability over the medium term
- Table: czech political Overview
chapter 2: economic Outlook
- SWOT Analysis11
- BMI economic risk ratings
- Economic Activity
- The Slowdown Should be painless
- Real convergence continues apace in the Czech Republic with GDP per capita set to reach US$27,385 by 2012
- The rate of real GDP growth will begin to moderate to average 4.6% over the five-year forecast period to 2012
- Table: economic Activity
- Fiscal policy
- Solid Fiscal picture, but More reforms Are Needed
- The Czech fiscal picture remains robust, and well within the 3% of GDP limit laid out in the Maastricht
- convergence criteria
- Table: Fiscal policy15
- Monetary policy
- Inflation Starting To Slide?
- With the latest inflation data showing a moderation in aggregate price growth for April to 6.8% y-o-y following the
- January and February joint high of 7.5%, there are tentative signs that the seasonal inflationary surge is starting
- to subside
- Table: Monetary policy
- exchange rate policy
- Koruna To continue Strengthening, Despite New FX policy
- We believe that the now approved measures to stem koruna appreciation will not live up to government expectations
- Table: exchange rate policy
chapter 3: Special Report21
- Business Outlook For Global Frontier Markets
- Growing Fast On The New Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the world
- economy, but they possess characteristics that will see them gain importance in the eyes of investors and global
- businesses over the coming years
- Table: Frontier Markets - Key Data And projections For Top 10 countries
- Frontier investment
- Potential And Pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- Table: GDp per capita, uS$ (in Order Of % increase)
- Table: Diversity Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market indices25
- regional Overview
- laos
- Neighbouring economies The Key To Growth
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for its
- natural resources
- Yemen
- Huge Potential, but Don't bank On Gcc Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- Table: Yemen economic Activity
- Democratic Republic Of The Congo
- Mining industry To Drive Growth
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: Democratic republic Of The congo - economic Activity32
- cuba
- Investment Prospects After Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- Table: cuba Macroeconomic Data And Forecasts36
- Mongolia
- Minerals To Drive Economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- Table: Mongolia - economic Activity
Chapter 4: Business Environment39
- SWOT Analysis39
- BMI business environment risk ratings40
- Business Environment Outlook
- Institutions
- Table: BMI business And Operational risk ratings
- Table: BMI legal Framework ratings44
- Infrastructure
- Table: labour Force Quality46
- Market Orientation47
- Table: Top export Destinations (uS$MN)
- Table: emerging europe FDi48
- Table: BMI Trade Ratings49
Chapter 5: Key Sectors51
- Food & Drink
- Table: Value/Volume Sales of canned Food & confectionery - historical Data & Forecasts53
- IT55
- Table: Czech Republic's iT Sector - historical Data & Forecasts (uS$mn unless otherwise stated)