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Current account deteriorated in November; all-year results will be record-high

In November, the current account surplus declined. The drop was due to higher dividend outflow as well as given payments from the Czech Republic into the EU budget. The trade balance remained sound. Despite November’s slightly worse result, the all-year surplus should print at a record high.

The current account printed a surplus of only CZK4.6bn. Dividend outflow strengthened from CZK6.4bn in October to CZK13.4bn, and the deterioration also reflects the outflow of funds from the Czech Republic into the EU budget amounting to CZK2.6bn. The primary income balance thus recorded a deficit of CZK16.3bn. The secondary income balance also deteriorated slightly when it printed a negative balance of CZK5.9bn. The trade balance showed a surplus of CZK26.7bn, which is a good result, but we have been used to last year’s better results.  

The 12-month cumulative current account balance is still located close to CZK100bn. This represents 2.1% of GDP. The all-year result should print a historically high surplus. It is supported by strong readings of external trade, but the income balance has also slightly improved.   

The financial account saw an inflow of capital amounting to CZK5.6bn when FDI reported an inflow of CZK0.9bn (with CZK5.8bn in reinvested earnings). Today’s data also confirmed that the CNB intervention activity eased in November. FX reserves (adjusted for exchange rate changes) increased CZK29.1bn. 

The external trade balance remains on a growth trajectory. The very good results are thanks to strong domestic demand (especially for cars) and fading domestic investment activity, which drags imports. Yesterday’s figures from Germany confirmed that external demand should remain strong as industrial production accelerated and all-year GDP was sound. The external position of the Czech economy thus remains strong. The current account’s positive balance pushes for exchange rate appreciation. However, these pressures face CNB intervention. The level of EURCZK27 will stop hindering the koruna’s appreciation in 2Q17. By that time, it should be clear that inflation has already hit the CNB’s target and that it will stay close to it going forward. Thus, there will be nothing left in a way to scrap the floor.