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The 12M cumulative of net FDI inflow reaches a historical high

The current account balance stepped into 2017 with a surplus of CZK29.4bn. The main driver of this result was a surplus in the balance of goods and services amounting to CZK31.6bn. Interesting movements occurred in portfolio investments. Their weak negative balance was affected by capital inflows that the Czech banking system deposited abroad in December last year as an effect of regulatory requirements (the Resolution Fund). This reversed flow was offset by an increase in holdings of government bonds by non-residents at the beginning of the year.

The current account balance showed a deficit of CZK29.4bn in January. This result comes on the back of the positive balance of goods and services amounting to CZK31.6bn. The Czech Republic recorded an inflow of CZK3.7bn from the EU budget. The total balance of primary and secondary income reached a negative CZK3.8bn.

Significant movements were recorded in the financial account in January. The slightly positive balance of portfolio investment was affected by two opposing effects. In the Czech banking sector, capital has returned of an estimated CZK100bn, which was deposited abroad in December as a result of optimising the structure of bank balance sheets in response to regulatory requirements (the Resolution Fund). These operations were offset by the increase in holdings of government bonds denominated in CZK by non-residents. In January, a massive inflow of capital streamed into the Czech economy in connection with the opening of positions by foreign investors to speculate on CZK appreciation after the planned FX floor removal. After all, the CNB spent EUR14.5bn on intervention in January.

Compared with portfolio investment, FDI recorded a negative balance. The amount of the deficit amounted to CZK27.6bn and hence supported a further increase of 12M cumulated deficit of direct investment to a historical level of almost CZK160bn.

This year, we expect a current account surplus in the size of CZK44bn. Thus, it will achieve only half of last year's surplus. This is set to mainly increase the negative balance of income accounts that will reflect the outflow of capital during the year after FX floor removal. Despite this effect, the external position of the Czech Republic remains more than favourable because the positive balance of goods and services is set to fall only slightly. This situation will create pressures on the koruna's appreciation after the end of the FX floor.