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Current account boasts surplus despite notable dividend outflow

September’s current account printed a mild surplus. The real economy thus confirms speculative inflow is not the only factor putting pressure on CZK appreciation. The surplus was created despite strong dividend outflow. The Czech external position thus remains strong, and the CNB will have to continue intervening to keep the EUR/CZK exchange rate above 27.   

The current account printed a surplus of CZK 4.8bn, roughly in line with our expectations in September. Dividend outflow recorded CZK 26.6bn, dragging the primary income balance into a deficit of CZK 24.3bn. The secondary income balance also recorded a negative balance partly due to the marginal inflow of funds from the EU budget (CZK 0.6bn). However, all the negatives were offset by the positive balance of trade with goods and services that amounted to CZK 33.7bn. 

The 12-month cumulative current account balance recorded another improvement in September, reporting a surplus of nearly CZK 100bn, which represents 2.1% of GDP. The cumulative balance had been elevated for a couple of months. All major balances have recorded an improvement with the exception of secondary income, which suffers from a temporary discontinuation in EU funds inflow.  

The financial account saw an inflow of capital amounting to CZK 13.1bn when FDI reported a strong inflow of CZK 37.4bn (including CZK 7.9bn in reinvested earnings). Inflow of foreign investment (with some swings) seems to have revived in recent months. Today’s data also confirmed that the CNB’s intervention activity increased in September. FX reserves (adjusted for exchange rate changes) increased CZK 81.9bn. 

The external trade breaks records in both real and nominal terms (according to all various methodologies). The very good results are thanks to strong domestic demand (especially for cars) and fading domestic investment activity, which drags imports. The external position of the Czech economy thus remains strong as the current account is set to print a surplus of 2.3% of GDP this year, according to our estimates. The current account’s positive balance pushes for exchange rate appreciation. However, these pressures face CNB intervention. Besides the incoming speculative capital, the CNB also purchases EUR flows created by the real economy.