Sunday, 20 September 2009

Exchange Rate

When we bought our Czech house three years ago the exchange rate was just over 40 and it stayed there until last summer. Then the financial crisis hit and sterling dropped to 30 crowns and then to as low as 23, rose to 30 and now seems to be dropping again. It had always been in my calculations that the Crown would strengthen as the Czech economy grew. But this current level appears to me to be definitely too low, many things including essentials are now cheaper in the UK, in some cases significantly so.

For a long time the Czech government was buoyant about this, apparently seeing the Crown's strength as some sign of virility. But as far as I see it can only harm the local economy. It is noticeable that the numbers of visitors in Cesky Krumlov are down. I gather that spend is down too. The town has always relied heavily on EU visitors, especially their neighbours the Germans and Austrians coming on day trips.

Whilst the rise in the crown could be argued to be because of improvements in the Czech economy, but not everyone has benefited from these. I was chatting to a neighbour who told me that she has seen no increase in her wage as a waitress for five years and that now everything is very expensive. Nor is it just a problem with the crown/pound exchange rate, the crown/euro rate is so out of kilter that she told me she and her friends go shopping in Austria where they get more for their money than here in Cesky Krumlov.

The wider economy is suffering – the second quarter of this year saw the largest decrease on GDP year on year (5.5 per cent) in the country's history with a fall of 12.8 per cent in manufacturing. As someone who has worked in economic regeneration this worries me immensely. Some towns rely on one major employer or one industry and this ridiculous exchange rate can only make life for those businesses and their communities very hard indeed. Unemployment rates are rising, they reached 8.5 per cent in August.

I find it extraordinary – I just can't understand why this happening. Experts seem to be similarly bewildered and have been predicting in a drop in exchange rates for some time. Well we must wait and see what is to come, one thing is certain, everything is uncertain now.

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