Czech Republic: 'Switzerland of Eastern Europe'
Web Producer, CNBC.com
With the Swiss National Bank setting a ceiling for the Swiss franc's appreciation against the euro, the need for new safe havens has become acute — and the Czech Republic, with its strong economy and stable currency, is emerging as a contender.
Economic growth in the Czech Republic outpaces that of many countries in the European Union, and its debt to gross domestic product ratio is only 38 percent.
And international ratings agencies are taking note of the improvements in its outlook. In early September, the country got an upgrade from credit rating agency Standard and Poor's by two notches to 'AA-', which means it is now above a number of euro zone countries including Italy.
"The Czech Republic is more of a safe haven, as reflected in the lower central bank rate than the ECB rate, coupled with a relatively robust currency," Simon Quijano-Evans, EMEA chief economist at ING, told CNBC.com.
On September 22, the central bank kept the 2-week repo rate at a record low of 0.75 percent but seemed to adopt a more dovish stance.
"I can imagine a move in any direction even though at this moment we have not found a reason (for a change)," central bank governor Miroslav Singer told reporters after the decision. The central bank had previously signaled that it would raise rates.
Unlike its Central and Eastern European peers, the country does not have to worry about price rises. Inflation in the Czech Republic fell to 1.7 percent in August, below the 2 percent target.
"It's the Switzerland of Eastern Europe, especially after the Swiss central bank's measure," Gyula Toth, head of EEMEA FI/FX Strategy at UniCredit, told CNBC.com.
"Public debt is very low, it's a very competitive economy, there's not too much foreign positioning in the bond markets."
But dark clouds may be on the horizon as the economic engine of Germany, the Czech Republic's biggest trading partner, seems to have begun to sputter.
The country doesn't have a problem with foreign exchange loans, as the population has been able to borrow in the local currency because interest rates have been low, Toth pointed out.
But other analysts said the economy could still be hit as it is very export-oriented.
"In the coming quarters, we believe GDP growth will moderate further due to an expected further slowdown of exports," Vojtech Benda, an analyst with ING, wrote in a note.