Czech News Daily

The sale of new cars in the Czech republic has started to slowly but noticeably rise. Whilst the year on year sales fell by 12% in January, sales in March have already been around one percent higher than last year. New cars sold in the first quarter of this year so far stands at 31 075 vehicles which is down 5.9 percent on last year’s first quarter. In the last few weeks however, sales have seen a distinct rise in demand due to an abundance of discounts and the ability to write off DPH (Sales Tax).

Up to date sales figures were released today by the Association of Automobile Importers.

According to Pavel Tunkl of the Association of Automobile Importers the fall in sales across all categories has up until now been caused mainly by lower demand in company orders, as companies have been waiting for the ability to write-off DPH on company cars, a law which came into force on 1st April.

March’s increase in sales is a result of the massive discounts with which sellers attempted to combat falling demand. According to Tunkl prices are currently at an all time low.

28% of businesses were active in buying company car in March, which is approximately a fifth of all Czech companies. In the first quarter of last year  that figure was 42%. The number of petrol engine cars sold year on year increased by 4 percentage points to 75%.

According to the Director of the Association of Automobile Production Antonín Šípek the sale of personal and light utility vehicles could end up at the same level as last year. ‘With the introduction of DPH relief for personal company vehicles the situation this year should level out. Demand in the light utility vehicle segment will shift back to the personal car category,’ he stated.

Sales of imported used cars fell year on year by 45% to 29 716 vehicles. This is attributed both to the introduction of a fee for first registration of old cars and the massive discounts offered by new vehicle sellers.

The Prague stock market began today’s trading down, following falls in European and Asian markets. The main PX index was down almost 4 percent half an hour into trading nearing 750 points. Markets in Germany, France and Spain have also see falls of more than 3 percent this morning reflecting other markets in the red across the world.

Financial stocks which rose last week on the Prague stock exchange have seen the largest falls. Erste Group Bank  dropped by almost 10 percent and Commercial Bank also suffered from the change in sentiment down 5%.

‘The markets are reacting negatively to news from the US ministry of finance, that banks may require more state finance and also that General Motors and Chrysler are again approaching bankruptcy. Likewise Morgan & Stanley are advising investors to sell shares following a strong three day rally as they see only limited potential for further growth,’ stated broker Josef Dudek of Fio.

The Prague exchange rose last week to a two month high and jumped in Friday trading to record it’s strongest growth so far this year. The main PX index gained 7.9 percent ending the week at 787.7 points.

Czech Airlines has, due to falling demand for air travel, cut some of its flights to Western Europe. They have however on the other hand increased flights on routes with stronger demand, in particular to Russia. The company will also re-open routes in the summer to Novobirsk in Russia and Taskent in Uzbekistan.

The changes will come into effect with the company’s new summer schedule which runs from 29th March to 24th October.

The boldest changes are on the Moscow route where the airline will increase frequency by 18 flights a week in comparison to 2008. There will also be 11 flights a week more to Ostrava, 7 to Brno, 5 more weekly flights to Hamburg and 4 more to Belgrade.

By contrast the company will fly seven planes a week less to Talin in Estonia and is dropping 4 flights a week from it’s Amsterdam service. Flights to Dublin will cease completely.

The pronouncement of no-confidence against the Czech Government will undoubtedly have an effect on the economy. A couple of minutes after the fall of the government for example the Czech Crown reacted sharply and the currency continues to weaken today. The political instability also weakens much needed trust in the markets and the stature of the Czech economy in the world. On the other hand the markets are becoming quite used to hearing bad news. So what are the likely effects?

Regional Effects: Investors may again view Central and Eastern Europe as a whole and the situation in the Czech Republic could unsettle the whole region. The recent resignation of Hungarian President Ferenc Gyurcsány doesn’t help this view. We’ve already felt the effects of this dangerous generalisation last month when the Czech Crown fell on bad news from other Eastern European countries.

Effect on the Czech Crown: Immediately following yesterdays vote of no-confidence the Czech Crown fell 30 hellers against the Euro. It further weakened today reaching 27.40 Kč per Euro. According to Next Finance analyst Vladimír Pikora the market is waiting for further developments from the political scene. ‘The London players will be uncomfortable until the situation stabilises and will prefer to sell the Czech Crown’, said Pikora. In his opinion the Crown is also showing weakness from a technical perspective and he expects further falls.

Effect on confidence: The office of statistics revealed today that economic confidence grew in March for the first time since last February. Both households and business have higher expectations. It isn’t however possible to judge the what effects the fall of the government will have on this data. The study also shows however that confidence from our most important trading partner has fallen to an all time low. Managers and owners of German businesses are convinced that the economy is currently in decline, but also that it has to rebound.

According a member of economic advice team to the government (NERV) Tomáš Sedláček the vote of no-confidence against the Topolánek’s government is very unfortunate. It happened almost perfectly in the middle of the Czech Presidency of the EU and so damages his credibility. Sedláček added that in-spite of the fact that the fall of the government was in no way related to any economic factors, the foreign press may connect the two things.

‘In the case that ratings will be assessed by single country the Czech Republic could find itself in a disadvantageous position. That naturally has serious consequences for the obtain-ability of credit and the price of credit,’ said the president of the alliance for Industry and Transport Jaroslav Míl.

Effect on economic performance: Risk analyst for ČSOB Bank Jan Čermák supports the prediction that in the coming months the market will be weighed down by speculation that political instability will endanger public finance or even worsen, as in nearby Hungary. Other analysts however confer that political instability doesn’t always affect the market.

The alliance for Industry and Transport however consider a vote of no-confidence during the EU Presidency a negative signal to the whole of Europe and an incident which worsens the country’s image. The economic commission reacted in a similar way - in their opinion the fall of the government doesn’t in any way help to solve the current serious economic state.

Effect on the state budget: According to ČSOB Bank analyst Petr Dufek it’s a question of what will happen with the bond market. ‘Nevertheless in the case that the Czech Republic won’t have a strong government, no one knows how the public deficit will be managed and if the Ministry of Finance is going to be able to address this negative situation, and the growing deficit which is expected this year. We see already that actual bonds are falling in price and so becoming a burden on state borrowing’, said Dufek to Czech TV.

‘This declaration by the Czech Republic supports the argument of French President Sarkozy, who points out that small countries are unstable and not significant enough to take on the role of leading Europe. The bad name which we’ve made for ourselves will be around many years,’ said Industry Alliance boss Míl.

World markets are showing signs of grown driven by positive investor sentiment and the recent steps taken by the American Government to stabilise the banking sector. Czech markets have seen strong growth in the last two weeks with the Prague Stock Exchange (PX) up almost 20 percent since the beginning of March and a jump of 3.5 percent in early trading today. Only Russia and Hong Kong have outperformed the Prague Exchange in recent weeks.

The main Prague Stock index PX was up 3.56% at 9:20am at a high of 756. Driving the growth was the Erste banking group which saw a rise in its share price of more than 11%. Performance today across other Eastern European markets isn’t as strong with no index up more than 1.5% by 11am.

Debts of Moravian Energy, part of business tycoon Tomaš Chrenek’s declining empire of companies are according to today’s economic newspaper (HN) approaching four billion crowns. To blame is the biggest domestic crash of recent times - Glass and porcelain producers Porcela Plus and Crystalex have already gone under.

Insolvency expert Lenka Vidovičová estimates that total debts taken on under bankruptcy proceedings have surpassed 3 billion crowns. The owner of the firm is however far from being able to cover these debts, the paper stated.

Commercial Bank has already admitted that it may loose up to a billion crowns. In addition Chrenek’s firm owes UniCredit Bank upwards of 380 million crowns and Česká spořitelna almost 200 million according to data from the receiver.

Banks turning their backs on the Steelworks

‘Chrenek has lost our confidence. We don’t want anything to do with his companies and even his suppliers will be subject to greater oversight’, maintained a top manager from one of the banks which financed Moravian Energy.

Jiří Cienciala, director of the Třinec Steelworks, the jewel in the crown of Chrenek’s business empire, verified that some banks have already turned away from the company. Confidence has also been lost in other firms in the empire including television and film studio Barrandov and Agel health holdings.

Moravian Energy, once one of the most well known suppliers of energy in the country got into serious difficulties when ČEZ shut off the supply of electricity in February. ‘We’re looking to recover outstanding debts of between one and two billion crowns”, said a spokesperson for ČEZ.

Moravian Energy is in debt to many companies. The debt to Swiss company Atel alone is approaching a billion crowns. Tens of millions of crowns are owed to Prague Energy, First Energy from J&T and E.ON.