Association: If the crown remains strong, exporters' sales will drop by 210 billion crowns

Association: If the crown remains strong, exporters' sales will drop by 210 billion crowns

Association: If the crown remains strong, sales to exporters will drop by 210 billion crowns

Czech banknotes, money. Thousand crowns. Illustrative photo.

Prague – If the koruna remains strong against the euro, sales for exporters could fall by roughly 210 billion kroner compared to last year, with many of them already generating a loss. Otto Daněk, vice-chairman of the Association of Exporters, said this to ČTK's question today. Compared to the year 2021, the drop in sales would even reach roughly 470 billion crowns, he added. Last year, exports from the Czech Republic exceeded the threshold of CZK 4.47 trillion.

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On Thursday, the Czech koruna closed trading at a rate of 23.69 CZK/EUR, making it the strongest against the euro in the last 14.5 years. Today it traded at 23.71 CZK/EUR and weakened against the dollar to 22.20 CZK/USD, when it closed at 22.01 CZK/USD on Thursday. The koruna has been steadily strengthening against the euro since around mid-November last year. Already at the end of last year, the euro reached its strongest exchange rate in the last 11 years.

According to Daňek, Czech industry is losing competitiveness due to the strong crown. “If we add the increase in interest rates, which in some cases is up to tenfold, inflation of around 15 percent, wage demands of employees, a sharp increase in energy prices and cooling demand from home and abroad, including missing components, we can probably estimate where this development is headed, ” he added.

“At the beginning of this year, components that are energy-intensive to produce came out cheaper already from Germany or Switzerland than from the Czech Republic,” said Daněk. According to him, this is a problem for the domestic economy, which is mainly oriented towards exports. “Citizens' purchases abroad will, of course, negatively affect the formation of GDP. And if there is a drop in exports, which make up 75 to 80 percent of GDP every year, the state's expenditures on unemployment and support for the poor will increase,” added Daněk.

Government according to him, it did not make sufficient use of its presidency in the European Union last year. She should have focused more on making energy measures in the Czech Republic comparable to other EU states, he said. Even though households and companies have a ceiling on energy prices, they are unbearably high, he added.

“Foreign investors usually perceive the sharp strengthening of the currency as a temporary phenomenon, so they want to continue spending money in the Czech Republic,” Ondřej Votruba, director of the Association for Foreign Investments, told ČTK. But if the koruna remains this strong in the long term, the flow of foreign investment into the country could be threatened, he added.

Among other things, the strengthening of the Czech crown may be due to waning concerns about the lack of natural gas, said Bohuslav Čížek, director of the economic policy section of the Union of Industry and Transport of the Czech Republic (SP ČR). “A strong koruna makes imports relatively cheaper and is therefore an anti-inflationary factor, on the other hand, its rapid strengthening does not help exporters much. It is becoming more and more difficult for companies to reflect high costs into prices,” he added. According to him, companies often insure themselves against exchange rate fluctuations. A survey by the SP CR and the Czech National Bank shows that the share of financial security for exports has been roughly between 40 and 50 percent in recent years, he added.

One of the largest exporters in the Czech Republic is, for example, the Agrofert holding, which belongs to the trust funds of the chairman of the ANO movement, Andrej Babiš. According to the Chamber of Commerce of the Czech Republic, in 2021 the company exported goods worth almost CZK 111 billion. “For us, the strengthening of the koruna is a very negative factor that we are now facing in addition to the rising prices of energy and inputs. We combine natural hedging with financial instruments of currency hedging,” Pavel Heřmanský, the holding's spokesman, told ČTK today. According to the Chamber of Commerce of the Czech Republic, the largest exporter in 2021 was Škoda Auto from Mladá Boleslav, which exported products worth CZK 379 billion that year.

Last year's foreign trade deficit was the highest since the Czech Republic joined the EU. It amounted to 198.1 billion crowns and increased by 189.2 billion crowns year-on-year. The export value was also a record. Foreign trade in goods reached the level of 4.5 trillion crowns.

According to Daňko, however, the year 2022 was atypical from the point of view of foreign trade. “On the one hand, the supply-customer chains affected by the covid pandemic began to straighten out, but with the start of the war in Ukraine, problems in the energy sector accelerated very significantly,” he said.