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Shock for Exports, Czech Manufactures Counter with Innovation and Flexibility
SHOCK FOR EXPORTS, CZECH MANUFACTURERS COUNTER WITH INNOVATION AND FLEXIBILITY
It is no surprise that the role of industry and exports is of key importance for the Czech economy. This country is a typical example of a small, open economy dependent on the development of the external environment. The degree of openness of the Czech economy is one of the highest within the European Union. Moreover, the country´s foreign trade turnover is growing faster than the economy as a whole on a long-term basis. The only exception was 2009, the year of global economic recession. In that year, Czech exports dropped by nearly 10 % in real terms. The recovery, however, was very quick, with exports returning to their pre-crisis levels after approximately 18 months. Investment, on the other hand, took nearly a whole decade to improve.
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FOR FOREIGN TRADE, THE PANDEMIC WAS A SHOCK COMPARABLE WITH 2009
The year 2019 was already a presage of worse times for exporters. The year 2020 and the economic crisis, as a consequence of the new coronavirus pandemic causing the covid-19 disease, meant one thing: the real volume of Czech exports declined for the first time in 11 years. Already in the last quarter of 2019, Czech exports declined in real terms year on year, specifically by 1.2 %, although the annual balance still showed a 1.2 % growth. Czech exports were hit by the recession in German industry with a relatively long delay. German industry was in decline from mid-2018, not only because of the cyclic factors, but also in connection with structural problems, which affected especially the automobile and energy industries. An even greater shock came at the end of the first quarter of 2020, and especially in the following quarter. The spreading coronavirus pandemic provoked tough restrictive measures on the part of most governments, which strongly paralysed the production abilities of the economies concerned. Absolutely unprecedented was the closing of the borders within the European Union, whose very existence stands on the free movement of goods, services, and persons. The borders with countries outside the EU were naturally also practically impassable. The global entwinement of production chains thus unveiled the weak link of this production model, with a number of manufacturing plants having to be closed because of a shortage of material inputs. This consequently became a problem
LAST YEAR´S FOREIGN TRADE SURPLUS WAS, SURPRISINGLY, THE HIGHEST IN HISTORY 250 (USING THE NATIONAL METHOD, IN CZK BILLION)
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50
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: ČSÚ, Ekonomický a strategický výzkum, Komerční banka
on the part of exporters, including Czech businessmen, who in the first quarter of 2020 exported 1.9 % fewer goods year on year, and in the second quarter the slump was an unprecedented 23.3 %. In most economies, the spring wave of the coronavirus pandemic culminated in April, when the economies, including the Czech Republic, fell into hibernation because of government measures. Their mitigation began in May, which led to a revival of economic activities, and as a result the third quarter was doing much better in comparison with the second, especially as regards foreign trade. The arrival of the autumn months, however, once again witnessed a worsening of the epidemiological situation. Taught by the experience undergone during the first wave, the government refused to impose across-the-border restrictions, and industry, in particular, carried on undisturbed, enjoying an unexpectedly strong demand from abroad. This naturally resulted in unexpectedly favourable results in foreign trade in the second half of 2020.
Let´s examine in more detail how Czech exporters and importers fared in the pandemic year of 2020, especially in comparison with 2019, and how this situation became reflected in foreign trade statistics. When looking at the figures in goods’ trading in 2019, we see a slight increase in turnover in comparison with 2018, when the sum of total exports and imports increased by 1.5 %, with exports increasing by 2.1 % year on year and imports by 0.8 %. The balance of trade in goods ended in a surplus of CZK 145.7 billion, in comparison with CZK 98.5 billion in 2018. The year 2020 unequivocally reflected the coronavirus crisis. In the first half of that year, exports dropped by 13.5 % and imports by 11.3 %. Total surplus dropped by one half, in comparison with the first half of 2019, amounting to CZK 51.7 billion. The revival shown in the third quarter, supported by strong foreign demand, spilled into the fourth quarter, so that the figures for the second half of last year absolutely unexpectedly more than offset the catastrophic results of the first half of the year. Total surplus in trade in goods for the whole of last year amounted to CZK 190 billion, CZK 44.3 billion more than in 2019. Nevertheless, it must be pointed out that weaker imports significantly influenced the result reflecting losses caused by a large proportion of shops being closed. In addition, an important role was played by poor investment because of the high cost. Total imports in 2020 fell by 5.9 % and exports by 4.5 %. Besides the surplus in trade in goods, the safer external position of the Czech economy is also supported by the surplus in its trade in services. The volume of services’ exports, however, is only about one-fifth of the volume of goods’ exports. From the balance sheet point of view, the figures are more interesting. In 2020, the balance of trade in services showed a surplus of CZK 105.4 billion. Let´s recall that the surplus in trade in goods amounted to CZK 190.0 billion. The services sector last year reflected the impact of restrictions imposed in connection with the coronavirus pandemic. The exports of services in 2020 declined by 17.3 % year on year and imports fell by 20.5 %.
FOREIGN DEMAND WILL BE ONE OF THE DRIVERS OF CZECH ECONOMIC REVIVAL THIS YEAR
The Czech Republic, an industrial country exporting about one half of its entire production, is essentially dependent on the condition of the global economy and free foreign trade. In respect of both these factors, the year 2020 was a great challenge for domestic producers. Nevertheless, as shown also by the previous crises – the 2009 global recession, the European debt crisis 2011 and 2012, the 2013-2017 exchange rate commitment and the period following the annexation of Crimea by Russia in 2014 and the consequent sanctions against that country – Czech manufacturers are innovative and flexible, regarding the current situation as an opportunity. It is therefore expected that in 2021 net exports will be one of the drivers of the performance of the domestic economy and will contribute to the anticipated 2.5 % growth of the Czech economy.
JAN VEJMĚLEK
Chief Economist Head of the Economic and Strategic Research Department E-mail: jan_vejmelek@kb.cz
Nothing has changed regarding the key position of the manufacturing industry and that of Germany as the Czech Republic´s key partner during the pandemics The decisive role in foreign trade statistics is played by products of the manufacturing industry. In 2020, this sector accounted for the unbelievable 95.7 % of total exports and for 93.7 % of total imports. For the whole of 2020, export of those products fell by 4.4 % in comparison with 2019, which in monetary terms amounts to CZK 156.3 billion. In the same period, import showed a 4.4 % decline, which in absolute terms is CZK 144.4 billion. The most successful Czech export item within the framework of the manufacturing industry is the production of motor vehicles. In 2020, products of this subsector accounted for as much as 27.3 % of total export of the manufacturing industry. The pandemic was responsible for the loss of CZK 98 billion worth of total automobile export, a decline of nearly 10 %. Other important items on the export side were machinery and equipment, and computers and electronic devices. On the side of import, motor vehicles, trailers and semi-trailers also held the most important position in 2020, accounting for 15.5 %, a fall of 13.5 % year on year. On the goods’ balance sheet, the manufacturing industry last year contributed significantly to its surplus, which amounted to CZK 256.4 billion. In comparison with 2019, this was CZK 4.0 billion less. The total product balance of the manufacturing industry was adversely affected, especially by the year-on-year decline in the surplus in trade in motor vehicles. However, the lowering of the deficit in crude oil and natural gas trading by as much as 55.9 % was most important. Here, of course, besides the lower volume of import, an important role was played by the fall in crude prices. From the territorial point of view, the position of the Czech Republic remains unchanged. Its geographical position and EU membership unequivocally determine its key trade partners. In 2020, 79.7 % of total Czech exports went to EU countries, with the Eurozone accounting for 64.9 % of total exports. The unequivocally most important Czech trade partner is Germany, with a 31.5 % share of total Czech exports. In second place, far behind Germany, is Slovakia with a share of 9.2 %, followed by Poland (6.6 %), France (4.8 %), Austria (4.1 %) and the UK (3.8 %). Total surplus in trade with EU countries in 2020 amounted to CZK 684.8, in comparison with CZK 638.4 billion in 2019.
