Record Czech Sept trade surplus marks strong economy

By Marek Petrus

PRAGUE, Nov 3 (Reuters) - The Czech Republic posted a record foreign trade surplus for the month of September on Friday, reinforcing expectations of healthy economic growth and a firming currency.

The monthly trade surplus swelled to 7.46 billion crowns ($339.2 million) from 5.25 billion a year earlier, exceeding the median forecast in a Reuters poll by about a half, as monthly export volumes reached their second highest-ever level.

The figure marked the best result for September under the comparable data series from 1996. Economists said it would help the crown currency consolidate its gains after a rally of nearly one percent over the past week.

"We were not very surprised about exports, which have managed to benefit from euro zone growth, but mainly with imports which lagged our expected dynamics," said Jan Vejmelek, head of economics and strategy research at Komercni Banka.

More than 80 percent of Czech exports have flowed to other European Union countries and have benefited from economic recovery in West Europe, with the euro zone keeping its momentum after recording its fastest expansion since 2000 in the first half.

The bulk of the year-on-year rise in the September surplus came from booming exports in the car, electronics and other industries, dominated by foreign investors such as Germany's Volkswagen <VOWG.DE> and Taiwan's Hon Hai <2317.TW>.

"In our assessment, net exports kept supporting GDP growth in the third quarter," said Pavel Sobisek, chief analyst at HVB Bank in Prague, who has pencilled in gross domestic product (GDP) growth of around 5 percent for July-September.

"HIGH GROWTH, RISING INFLATION"

The Czech Republic has been the second fastest-growing economy among the four newest EU member countries in central Europe, with annual expansion slowing to 6.2 percent in the second quarter after peaking at 7.1 percent in January-March.

The central bank reinforced the outlook for healthy growth in a quarterly update of its Inflation Report and minutes to its Oct. 26 policy meeting where bankers held fire on further credit tightening after interest rate hikes in July and September.

The report said the contribution of exports to growth had declined this year. Growth was being propelled increasingly by investments and a revival in consumer spending, fed by rising incomes, employment, social transfers, and a boom in buying on credit.

"Over the forecast horizon, the economy would be characterised by quite high growth and rising inflation," said the October meeting minutes.

The accelerating consumer demand and inflation, seen attacking the upper edge of the central bank's target at 4 percent at end-2007, have fed market expectations of further interest rate hikes from their current level of 2.50 percent.

But analysts said a firm crown might delay any additional rate tightening beyond December. The currency traded a touch softer at around 28.100 per euro <EURCZK=> on Friday morning.

"In our view, the crown will soon break its historic maximum (of 27.950 per euro). If this happens, the central bank will wait with a further rise in interest rates until the first quarter of next year," said Ales Michl at Raiffeisenbank.

For INSTANT VIEW on trade data, click on [ID:nL03799823] For TEXT of central bank meeting minutes..[ID:nL03883315]

((Editing by David Christian-Edwards; Reuters Messaging: rm://marek.petrus.reuters.com@reuters.net; e-mail: prague.newsroom@reuters.com or marek.petrus@reuters.com; Tel: +420 224 190 477))

Keywords: ECONOMY CZECH