The Czech Republic’s trade relations with the UK

The unexpected outcome of the referendum on the exit of the United Kingdom (UK) from the EU led to an immediate weakening of the pound and the euro, a fall in stock markets and a rise in yields on bonds of euro area periphery countries. In the short term, there was an increase in uncertainty that will affect investment activity and consequently also GDP growth, particularly in the UK.1 The negative impact of the UK’s exit from the EU as such will be reflected in their mutual trade in goods and services only at a longer horizon of several years.2

The new forecast includes updated outlooks for the Czech Republic’s external demand and other foreign variables, which already incorporate the expected impacts of Brexit. The aim of this box is to present the direct trade links between the Czech Republic and the UK. Trade in goods between the Czech Republic and the UK reached CZK 227.7 billion in 2015,3 accounting for 3.7% of total Czech trade turnover. Exports to the UK made up 5.1% of the Czech Republic’s total goods exports. The UK was thus the Czech Republic’s fourth largest trading partner in terms of exports.4 By contrast, imports from the UK accounted for only 2.1% of total Czech goods imports. The trade balance thus ended in a large surplus for the Czech Republic in 2015 (see Chart 1).

Chart 1 (BOX) Czech trade in goods with the UK
Trade with the UK is characterised by large surpluses
(CZK billions; balance of payments methodology)
 

As regards the commodity structure,5 the most important item of both exports and imports was machinery and transport equipment. Machinery exports made up almost 70% of total exports of goods to the UK, with passenger cars accounting for almost one-third of this amount (CZK 48 billion in absolute terms). The machinery and transport equipment category also recorded the highest surplus of all the trade categories (see Table 1). One-half of this surplus was due to a surplus on road vehicles. Only chemicals recorded a deficit.

Table 1 (BOX)  Structure of Czech trade balance with the UK in 2015
The biggest export and import item was machinery and transport equipment
(CZK billions; cross-border statistics)

SITC

 

Exports

Imports

Balance

0

Food and live animals

4.0

3.0

1.0

1

Beverages and tobacco

1.3

0.8

0.4

2

Crude materials, inedible, except fuels

0.9

0.7

0.2

3

Mineral fuels, lubricants and related materials

1.8

1.3

0.6

4

Animal and vegetable oils, fats and waxes

0.4

0.0

0.4

5

Chemicals and related products

5.8

14.7

-8.9

6

Manufactured goods classified chiefly by material

23.5

11.5

12.0

7

Machinery and transport equipment

143.0

35.1

107.9

8

Miscellaneous manufactured articles

25.6

6.1

19.5

9

Commodities and transactions not classified elsewhere

0.2

0.2

0.0

 

Total

206.6

73.4

133.1

Trade in services between the Czech Republic and the UK reached CZK 56.7 billion in 2015, accounting for 5.4% of total Czech trade turnover. Services exports to the UK accounted for 5.9% of Czech exports and services imports from the UK for 4.9% of Czech imports. The services balance thus ended 2015 in a modest surplus (CZK 8.9 billion). The biggest contributor to the overall surplus was the surplus on transport, which reached almost CZK 6 billion.

The UK thus represents a relatively large export market for Czech engineering products, especially in the automotive industry. Nevertheless, the direct impacts of the economic slowdown in the UK on the Czech economy will be relatively moderate. A slowdown in British demand of 1.5 percentage points will reduce growth in Czech exports to the UK by about 5 percentage points in 2017 (reducing the goods and services surplus by about CZK 10 billion).


1 CF revised the UK’s GDP growth outlook for 2017 downwards by 1.4 percentage point to 0.7%. According to the IMF, the UK’s economic growth will slow by 0.9 percentage point to 1.3% next year. According to the European Commission’s simulations, GDP growth in the UK could show a cumulative drop of between 0.9 and 2.7 percentage points by the end of 2017 compared to the baseline scenario.

2 Moreover, its extent will very much depend on what exit terms are negotiated.

3 The aggregate figure is based on balance of payments methodology data.

4 The Czech Republic’s largest trading partner in terms of goods exports in 2015 was Germany, which accounted for 31.3% of total Czech exports. It was followed some way behind by Slovakia (10.7%) and Poland (6.4%).

5 The commodity structure analysis is based on cross-border statistics data.