Czech Q4 wages rise real 4.6 pct as economy grows

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PRAGUE, March 7 (Reuters) - Czech real average wages jumped 4.6 percent in the final quarter of last year as the central European economy powered ahead and inflation dropped, slightly narrowing the pay gap behind richer western European neighbours.

Data released by the Czech Statistical Bureau on Wednesday showed the average monthly pre-tax pay package grew in nominal terms by 6.2 percent year-on-year to 21,952 crowns ($1,024), outpacing inflation which was up 1.5 percent in the same period.

The real-term wage rise was the highest since the first quarter of 2004, but the growth did not worry analysts who said the fast-growing economy could stand such an increase.

"We consider the fourth quarter wage growth as healthy, it corresponds to what the economy can afford," said Ales Michl, an analyst at Raiffeisenbank. "Converted by the exchange rate, we have the highest wages in (former communist) central Europe."

Gross wages for 2006 as a whole rose 6.5 percent nominally from 2005 to 20,211 crowns.

Latest euro zone data show wages in the region grew 2.2 percent year-on-year in the third quarter.

Central European countries have long benefited from cheap labour costs, which lured billions of dollars in investments by west European companies seeking a low-cost base close to their core markets.

But the wage advantage has been eroding as new EU member states grow richer, pay more, and their currencies rise against the euro. Michl said that while in 2000 Czechs took home a mere 16 percent of the average pay in neighbouring Austria, this year it would be 28 percent.

Chief Economist Radomir Jac of PPF Asset Management said the wage rise should not spark inflationary fears.

"Although average real wage growth accelerated by the end of the year, we do not think it will be a big worry to the Czech central bank, once the development is put into context of productivity and unit labour costs productivity," he said.

The Czechs now have the lowest interest rates in the European Union, at 2.5 percent, with inflation at 1.3 percent in January. Analysts expect the central bank to tighten policy slightly in the third quarter.

Economists forecast fourth quarter 2006 economic growth (GDP) to reach 5.2 percent, extending a slowdown from a peak seen in late 2005.

TRADE DISAPPOINTS

The CSU separately reported a lower-than-expected January foreign trade surplus of 10.96 billion crowns, showing the first narrowing of positive balance in trade with machinery and cars since March 2004.

This was partly due to a high comparative base in January last year, but the figures were a fresh sign of how trade balance, while still in a surplus, would drag down GDP figures.

"The decline of the positive balance should deepen the negative contribution of net exports to GDP growth and burden the current account," said David Marek, chief economist at Patria Finance.

Czech exports have been booming thanks to the new foreign-built factories, such as a car plant built by Peugeot and Toyota, but the effect has waned for the time being, said ING senior economist Vojtech Benda.

The crown currency however showed no reaction to the data, trading unchanged from ahead of the data at 28.155 to the euro.