Czech Retail Slump Deepens as Cabinet Sticks to Austerity DrivePeter Laca
Czech retail sales declined more than analysts forecast in February, pointing to a continued lack of domestic demand as the central bank debates whether it needs to weaken the currency to stimulate the economy.
Sales fell 4.7 percent from a year earlier, compared with a 0.6 percent decline in January when shopping was boosted by New Year’s discounts, the Statistics Office in Prague said in a statement today. The reading was worse than the median forecast for a 2 percent decline in a Bloomberg survey of 11 analysts. Working-day adjusted retail sales fell 1.7 percent in February.
After cutting borrowing costs three times last year to effectively zero, the Czech Republic is in uncharted territory as the central bank debates whether to engage in currency interventions amid a record-long recession. The $217 billion economy is contracting as households and businesses spend less due to Europe’s debt crisis and government austerity measures that trimmed the fiscal deficit more than planned last year.
“While we keep our call that this year’s contraction in the Czech household consumption will be much softer than the 3.5 percent fall seen in 2012, we see February retail sales as a disappointment,” Radomir Jac, the chief analyst at Generali PPF Asset Management AS in Prague, said in an e-mail. “Retail-sales data are contributing to mounting downside risks to outlook of Czech economy into 2013.”
The public-finance deficit was 4.4 percent of economic output last year, according to revised statistics office data, less than the government’s initial estimate of a 5.2 percent gap. The shortfall was influenced by a one-time operation to include a 60 billion-koruna ($3 billion) settlement with churches for property confiscated during communism.
The government of Premier Petr Necas has cut investment, raised sales taxes and curbed public-wage growth to trim the budget deficit since taking power in 2010. Necas credits government policies with helping to cut borrowing costs to record lows and trimming state spending on debt servicing.
The yield on five-year koruna notes fell 172 basis points, or 1.72 percentage points, last year, touching a record-low 0.66 percent on Dec. 27. The rate stood at 0.88 percent today.
Fourth-quarter gross domestic product shrank 0.2 percent from the previous three months, marking the fourth consecutive quarterly decline. Output fell 1.7 percent from the final quarter of 2011, the steepest decline in three years. Household spending fell 3.5 percent in the full year of 2012, the first decline since 1998, the statistics office has said.
The central bank, which targets inflation, left the two-week repurchase rate at 0.05 percent for a third meeting on March 28, almost three-quarters of a percentage point less than the euro-area benchmark.
The bank’s forecasts signal a need for monetary loosening “sometime near the end of the year,” Governor Miroslav Singer said last week, reiterating the bank is ready to use currency interventions if needed.
The koruna is at the center of the policy plans as its depreciation helps boost competitiveness of Czech goods on foreign markets and makes imports more expensive, thus limiting deflation risks.
The Czech currency has lost 5 percent to the euro since Sept. 17, a day before Singer first said the central bank may sell the currency to meet its inflation goal. It was the fourth-worst performance in that period among the 25 emerging-market currencies tracked by Bloomberg.