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The current account printed a surprising surplus due to weak dividend outflow

The current account recorded a sound surplus once again when it printed a positive balance of CZK14.3bn. This result represents an upside surprise for the markets, which had expected it to swing into the red. We still await the beginning of the dividend season. External trade recorded a deterioration as it was affected by unfavourable calendar effects. 

The current account balance showed a surplus of CZK14.3bn in April, which was a much better result than in the same month last year. We are still awaiting the beginning of the dividend season, which last year started in April. Dividend outflow printed only CZK4.9bn, which left the primary income balance in a small deficit of CZK5.4bn. The secondary income balance stayed in the negative, as well, as it was not supported by the inflow of EU funds (only CZK0.2bn in April). We expect that the inflow from the EU budget will start as late as the end of this year. April’s external trade surplus sharply deteriorated compared with last year as it printed CZK25.4bn. But the development is mainly due to calendar effects as this April was three working days shorter than 2016. The cumulative current account balance for the past 12 months remains healthy as it still shows a surplus of CZK47.4bn.  

The financial account recorded an outflow of CZK76bn. In its structure, we see operations related to the CNB intervention regime and its end. In April, we recorded the last activities directly connected to the FX commitment regime. Portfolio investments recorded an outflow of CZK229bn, and other investments showed an inflow of CZK227bn. FDI inflow recorded a slowdown to CZK3.4bn. Altogether, the inflow of capital increased the CNB’s reserve assets by CZK76.3bn. Yet, revisions to these figures are highly probably as the item “errors and omissions” climbed to CZK61.6bn.  

The upcoming dividend season will dampen the current account balance in the coming months. Nevertheless, we expect the current account surplus for the whole year is set to reach CZK49.2bn, which is a slightly weaker result than last year. While the trade balance should improve, we expect the income balance deficit to deepen. The current account balance will thus induce pressure on koruna appreciation. We expect the EUR/CZK exchange rate will strengthen below EUR/CZK26 during the year. Yet, we still see major risks of volatility as investors still hold a huge position in CZK. In the case of increased stress on financial markets, they may hastily close their position, which would induce a sharp depreciation of the Czech currency.