Czech Republic Infrastructure Report Q4 2009

The Czech Republic is feeling the squeeze of the global economic slowdown, and the country's energy sector is one of the few showing signs of life in the latest quarter. BMI's latest forecast is that construction industry value will amount to CZK208bn in 2009, down from the CZK211bn we were forecasting earlier this year. The figure represents a decline from the CZK209bn that the national statistics office gave as the value of the construction industry in 2008. Construction's decline is, of course, in line with the country's general economic slowdown.

Forecasting beyond 2009, BMI sees construction industry value rising to CZK215bn in 2010, a 1.8% rise in real terms, and to CZK229bn in 2011, a real increase of 4.3%. We expect growth rates to accelerate to above 5% in the years after that. Such optimism is based upon the current global economic crisis coming to an end and recovery taking hold.

The latest quarter has brought signs of global economic improvement, with strong growth now evident in the major Asian countries and indications in the developed world that economic activity is picking up.

The Czech Republic is more dependent upon the powerful export economy of its neighbour Germany than it is on China or U.S., but recovery in global economic engines should eventually be felt in Central Europe.

Our forecast for the Czech economy is that it will contract by 3.1% this year, a deterioration from our previous forecast of a 2.1% contraction. BMI sees growth of 1.1% in 2010 and 3.2% the following year.

Construction figures early this year were the worst in a decade, and business sentiment has been extremely pessimistic. But the Czech Republic has few of the systemic risk factors that might discourage investors, and BMI anticipates a quick rebound. As a key country at the crossroads of emerging economies and powerful EU economies such as Germany and Austria, the Czech Republic has infrastructure strengths that some of its emerging neighbours cannot match. But the slowdown is nevertheless severe. Housing construction was dramatically down in the latest quarter, and one minister openly suggested that CEZ, the country's energy company, pay a dividend to the government to finance infrastructure spending elsewhere. The idea does not seem to be finding traction, but its appearance at all at ministerial level underlines the depth of the contraction.

CEZ was the driving force behind a disproportionate number of infrastructure initiatives this quarter. The company announced plans to build two gas-burning electricity generators, scheduled for completion in 2013 and 2015, to replace coal-fired plants that will be closed. CEZ also signed the joint venture deal to build a Slovakian nuclear reactor. German energy giant RWE also announced two gas pipeline projects.

Outside the energy sector, only Skanska, the Sweden-based construction company, was able to add much to the country's quarterly infrastructure initiatives. The company said it had received the lion's share of a contract to upgrade the Prag-Plzen rail line.