Having been back in the Czech Republic for about 5+ weeks (July 2011), has given me a picture of how the economic situation here, is different than in the USA. After the 2009 recession, which hit here as well, Czech growth is not as fast as its surrounding EU neighbors, but there are more encouraging factors, that the USA can only dream of. Because Czech is part of the EU, it has been able to expand (and continue to do so), its transport infrastructure program. The road construction has receded somewhat, but I can see continued progress in the building of new freeways and highways plus continued road repairs. Severe cuts have been imposed by the government as it attempts to get the budget deficit below 3% by 2013 from the 5.9 % in 2009.
The US government is just arguing, what to do about the 30+% deficit! Yes, a 10x bigger deficit, and growing…! Before that can be reduced, there will have to be a budget surplus, year after year.
In the last 20 years, since VW took over the SKODA car manufacturer in Czech, SKODA has grown so fast, that it is eating into the sales of the parent (VW) brands, and SKODA exports to Germany had to be restricted. 2009-2010 were SKODA’s biggest growth years! More SKODA’s were built and sold in that period than ever before. And that in a recession?? Well, yes, SKODA built the most fuel efficient cars at a time gas prices went up, and people were looking for the best fuel-economical cars!
So much for the big 3 US automakers proclaiming they were making gas-guzzling SUV’s because “the public asked for them…”. The development agency CzechInvest says that more than half of the largest global automotive suppliers have operations in the country, which provide carmakers with an almost complete local supply chain and thus, significant cost advantages. Car production is expected to reach 1.23mm by 2015 through the expansion of existing facilities. SKODA broke ground on an extension that will double the production of its (biggest) Octavia model.
In the Financial Times (June 21, 2011) Jan Cienski wrote an article explaining how a conservative approach has benefited the nation and banks’ (mainly foreign) owners. Martin Kraus is looking for funds to invest in his company to make toys and furniture for kindergartens, but it is difficult to persuade banks to give him money for equipment. “If you want to start a new business, even one that’s invented something as great as a lightbulb, the banks won’t lend you the money, because your company has no history.” However, loan portfolio’s are rising.
The conservatism of Czech banks served them well. They never dabbled in the exotic instruments that brought low US and West European institutions, preferring to remain with the staid business of taking deposits and giving loans.
Not that there aren’t any problems… the economy is open, but the institutions are weak…