Å kodaAuto ANNUAL REPORT 2003 - Skoda Auto

Status ReportDevelopment of the Czech EconomyThe Czech economy succeeded in maintaining a solid rate of economic growth despite weak economic performance inthe EU countries. In 2003 the Czech economy as a whole posted 2.8% growth. The most important factor driving theeconomy’s growth was domestic demand, mainly household consumption. Other contributing factors were lowinflation, higher utilisation of consumer loans and falling interest rates.The restructuring and modernisationof manufacturing continued, spurredon by foreign direct investments,while production in certain traditionalsectors was curtailed. Overall, industrialoutput grew by 5.8% in 2003.The rise in prices in the Czech economystabilised at a very low level. At thebeginning of the year, consumerprice inflation was negative. In May,it rose out of the deflation zone, buteven so throughout the entire yearinflation remained far below thetarget band set by the Czech NationalBank. The average inflation rate inDecember 2003 was 0.1%, its lowestlevel since the start of the Czecheconomic transformation. Prices ofindustrial manufacturers in 2003 fellby 0.3% compared with 2002. Theatmosphere of heavy competition inthe domestic market put a damperon inflation growth across the board.The key monetary policy rate (the ratefor 14-day repo transactions) was cuteight times between December 2001and August 2003, falling by a total of2.75 percentage points to 2.0%. Thenominal CZK-EUR (Czech Crown versusEuro) exchange rate fell in 2003 byan average of 3.3%, while the CZKgained 14% against the U.S. Dollar.Despite the economic slowdown inpartner countries, the balance offoreign trade improved in year-on-yearterms. Exports increased by 9.3% andimports were up 8.8%. The foreigntrade deficit reached CZK 71.2 billion,down CZK 0.1 billion from the previousyear. Export was buoyed up by theweakening CZK versus the Euro andby favorable development of exportto Germany and other countries ofthe Eurozone. Škoda Auto managedto maintain its position as the largestCzech exporter. The value exportsin 2003 reached CZK 121.3 billion,or 9% of the Czech Republic’s totalexports.The labour market situation wasunder the influence of the ongoingrestructuring. The unemploymentrate at the end of the year rose to9.3%. The growing State budgetdeficit is one of the principal risksfor the Czech Republic’s futuremacroeconomic development.Therefore, the Government of theCzech Republic approved a publicfinance reform, the implementationof which began on 1 January 2004.Czech Republic GDP growth, 1999 - 2003 (%)Škoda Auto share in Czech Republic exports, 1999 - 2003 (CZK bil.)41,50031,20029006001300019992000200120022003019992000200120022003Škoda Auto Export18