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15.11.2008

Consequences of world financial crisis

Consequences of world financial crisis for Czech Republic

The main problem of a modern economic system is in its construction, because when a crisis takes place in one state or group of countries, it will have influence on other countries all over the world. The only difference is in a variable extent of decrease in economy. Czech Republic and Central Europe seem to be relatively insulated from the crisis, and Czech is a one of some ''lucky'' countries, which is affected by this financial crisis to a lesser degree.

Czech economy and banking both are stable now and are not under the threat of present financial crisis, but its consequences will slow down the economic growth. Rate of economic growth in Czech Republic as a reason of total growth deceleration of West European countries is just slowing down, prime minister Mirek Topolanek, minister of Finance Miroslav Kalousek and president of Czech National Bank Zdenek Toum said.

Deposits and investments of Czech citizens and foreigners in Czech banking is protected by the decision of government. Deposits under 50 000 Euro are guarantee by 100%.

Czech economy is ready for economics grow deceleration; the reform of social and economic structure and funds was implemented, that is why Ministry of Finance is not going to change already fixed budget for next year, minister of Finance Miroslav Kalousek said.

In the 1^st of October, 2008 representatives of Czech National Bank and a State government declared that control originated situation and economic and financial instruments, which will help to avoid banking crisis in Czech Republic.

There are some factors, which are able to bring in crisis every country:

Large volume and number of foreign credits, which are directly up to some banks of USA.
High percent of risky commercial and hypothecary credits with delay of payment more than 3 month.
It is the analytics' opinion that a high amount of credits in a bank portfolio, which deposit was unequal evaluated and could be overpriced.

In Czech Republic these factors are not of great importance that is why State Government and chief analytics in financial sector of economy are optimistic in questions of world financial crisis and are sure that Czech economy is able to held out against the crisis with the least losses.

Let�s briefly review the main sectors of economy in Czech Republic and influence on them by world financial crisis.

Banking

Czech financial market is isolated from world financial crisis, representatives of Czech National Bank said. The reason of so good and optimistic position of financial sector is that Czech banks are strongly oriented toward traditional trade model in not saturated Czech market. Local financial institutes are not a part of global financial structures, which suffered losses from the crisis most of all. Poor collaboration with global companies and feeble dependence on foreign capital both a play saving role and help to avoid great losses. The crisis entailed a great demand on ready money. In the 16^th of October, 2008 Czech National Bank allotted around 5 mld korunas to commercial banks to stop panic among inhabitants. The main idea of these credits is a support of obligations and finances in the Czech bank market; guarantee of giving money out from deposits to the clients; a possibility to continue hypothecary programs. State Government is able to provide a help to banks as may be needed. There are resources for this case.

National currency

Stability of Czech economy in world financial crisis provides �strong� Czech koruna. During a long period of time Czech national currency consolidates relative to global currencies. During last two years a lot of experts were declaring that this impedes economy of the country and affects adversely to companies-exporters. But Czech Government asserted �strong� koruna and this positively affects economy of the country.

A graph bellow demonstrates that today crisis �helps� Euro only to restore some losses for the last 2 years.

Real estate

Market stagnation of hypothecary credits in Czech Republic goes insensibly. Hypothecary banks in the third quarter of 2008 gave clients on 3% less credits than last year in the same period of time. Regional Development Ministry of Czech Republic published the statistics of hypothecary credits. The most recession is in the market of hypothecary credits for physical people.

For today we can talk about 30 mld korunas and this comes to 4,5% from the last year�s amount of hypothecary credits. Ministry representatives took a part in composing this report and they suppose that a decrease of hypothecary credits takes place because banks toughened terms.

On the basis of statistics, which was taken from world hypothecary companies, Czech banks also toughened the terms of credit accordance; but market stagnation of hypothecary credits is practically insensible, that is why we are able to declare that Czech real estate market has all chances to go through the crisis without great losses, said minister Irji Tchunek.

Of course, limited availability of money will entail serious problems first of all to companies-developers and this will affect the quantity of new-built projects.

Manufacture

According to the statistics, which was published by Czech National Bank, measure of arrears of Czech companies amounts to 40% GDP of the country. This is around two times less than in the countries of �old Europe�. Around a half of all credits to Czech companies provides banks: 20% of all credits are from non-residents (foreign companies, foreign banks, general offices and etc.), 30% of all credits are from all other creditors.

Credit crisis directly affects most of all that companies, which relies on a strong increase in future and in its strategy of development depends most of all on borrowed funds, said President of the Union of Industry and Transport. But there are few companies in Czech Republic, where capital and borrowed funds are in the ratio, which doesn�t increase 30%.

Also such another companies will reach problems, where the measure of expenses on salaries and energy is very high and the other companies, which export production into different countries of West Europe. But an indirect crisis will affect practically all companies.

Stock-exchange sector

Stock-exchange sector is most of all subjected to investors� panic, and psychological effect from world tendency. Slump in indexes of world stock exchanges entails Czech stock market. Most of all developers� shares go down. It is easy to calculate the real losses of real estate market, which are concerned with reduction of investors� purchasing power and limited access for developers to credit measures. That people, who invested money in shares and unit trusts, suffer great losses.

15. 10. 2008 | Czech stock exchange in Prague started trading in normal and regular way. Prices of stocks, which decreased because of world trade financial crisis some period time ago and suffered on Friday four-year minimum, are raising now. The most important index PX rose at 10 a.m. to 8.28% and amounted 1062.8. The price of such big companies as CME (television channel Nova belongs to it) rose to 23.5% and amounted 805 korunas; Erste Bank shares (Ceska sporitelna belongs to it) rose to 12.6% and amounted 692.3 korunas.

12. 10. 2008 | There were great sales at Prague stock exchange on Friday because of world finance crisis. The most important index PX came down to 14.94% and amounted 888.5. It is four-year minimum and the most grate collapse from the foundation of Prague stock exchange in 1993. From the beginning of 2008 this index decreased more than to 51%. There was nothing similar in Czech history. Prices of stocks of such companies as AAA Auto, CME (television channel Nova belongs to it), Erste Bank and VIG came down noticeably.

On Wednesday in the 22^nd of October, 2008 situation at the Prague stock exchange took a turn for the better. Some of extremely low prices were liquidated, which were presented from the beginning of 2008. Investors bought different shares of such companies as Erste Bank, energetic company ČEZ, mobile company Telefónica O2. On the contrary the price of stocks of smaller companies was still decreasing. The most important index PX rose to 2.59% and amounted 1501.6 points. By the way in the end of the day the price on main shares rose to 4%, that is why total fall from the beginning of the year amounted 23%. Index PX with a great difficulty held position because of psychological panic in 1400 points. Last time Prague stock exchange was in the same condition in the 25^th of September, 2006.

Viennese stock exchange (VSE) is going to buy an outstanding amount of Prague stock exchange shares, informed AFP agency with reference to local mass media. The price and the share of this future deal don�t mention. According to the one of the representatives from such outstanding companies as PSE, company Patria Finance, a partnership with Viennese stock exchange will positively affect Czech stock market. The company Patria Finance holds around 25% of PSE shares.

Services

Czech Republic is oriented on tourism and a lot of spheres of economy depend on tourist inflows. Analyze, which was made by top-level agencies in marketing, lets us to suppose with a great probability that decrease of tourist inflows to Czech Republic will not have a critical situation, because of favorable geographic location. In tourism during financial crisis and economic problems in the country the first projects and countries, who suffer losses and threats, are the most expensive directions. That is why tourist inflows from Europe to long journey and expensive directions (exotic countries, Asia, South America) will decrease. But requirements of a rest will be substitute for not so expensive and open Czech Republic. Also the company Czech Airlines supposes profits go up. World financial crisis is our chance, said directors of the company Czech Airlines. In that time, when competition reduces a number of flights, Czech Airlines increases the number of flights and is ready to winter season.

We agreed in opinion that right now there is a very good chance to get a bigger piece, said vice-president ČSA, department of marketing Petr Pishtelak; hi is sure in future success of chosen strategy. For example, ČSA increases a number of flights to Italy in the hope of not to loose the opportunity to consolidate its own position in this sector in the market at that time, when company Alitalia suffers great losses.

Another ČSA novelty is a name of a flight Prague-Amsterdam designated by Chinese company China Southern, which also has flights to Peking and Canton.

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