| PRAGUE, June 13
PRAGUE, June 13 Floods that have caused billions
of euros in damage across central Europe may actually provide an
economic boost for the Czech Republic, a country struggling to
shrug off its longest recession in more than two decades.
Governments and insurers from Germany to Romania will have
to pick up the costs of helping families and business recover
from the floods, which have killed at least a dozen people and
driven hundreds of thousands from their homes since the start of
But central bank Governor Miroslav Singer cautioned against
confusing gross domestic product (GDP) growth with wealth.
"The repair of flood damage will probably result in an
acceleration of the tempo of GDP," he predicted in a
presentation last week, adding: "This variable measures economic
activity, or the creation of new value each year; GDP does not
The rising waters have forced factories to halt production
and snarled logistics, cutting into output, while sludge dredged
up from river bottoms has wiped out crops in low-lying areas in
the Czech Republic and elsewhere.
Those factors, however, could be outweighed - if only just -
by the funds will governments pump into rebuilding
infrastructure and the cash families and firms will spend on
replacing lost or damaged items.
Singer said that the floods would destroy some of the
country's wealth but repairs would create new output, boosting
GDP growth by tenths of a percentage point.
With the government expecting no growth this year, that
could potentially lift the Czech Republic out of contraction.
Economists said it would particularly aid construction, a
sector that fell 11.4 percent in April versus a year earlier.
"The rebuilding of roads and railways and bridges and houses
and infrastructure damaged during the floods will generate GDP
growth," said Neil Shearing, an economist for London-based
In Slovakia, Hungary and Romania, where water levels remain
high in some places, officials have yet to estimate the damage.
But ratings agency Fitch said damage in worst-hit Germany
could be as much as 12 billion euros ($16 billion), more than
the cost of floods in 2002 when water rose to similar levels.
The Czech Insurance Association estimated they would have to
spend 7.5 billion crowns ($390 million) on claims, while the
country's Agriculture Chamber estimated a bill of 2 billion
crowns ($104 million) more due to flooded farmland.
Still, governments and companies have announced relief
funds, and insurance payouts will go straight into the economy,
rather than staying on financial institutions' books.
German Chancellor Angela Merkel has said there will be "no
upper limit" to state aid, and sources in her centre-right
coalition said Berlin would set up an 8 billion euro fund.
Insurers are expected to pay 3 billion more to claimants.
The Czech government has pledged to spend 7 billion crowns
($364 million) on infrastructure and other repairs and forgive
another 5 billion crowns in taxes for affected firms.
Majority state-owned utility CEZ has agreed to
forego prepayments from affected customers for up to three
months, a move economists say will free funds to boost flagging
consumption, a main cause of a recession that analysts say could
be in its eighth consecutive quarter.
"It does not mean some kind of significant boost, but
will... it mean a boost to demand and the creation of new jobs?
Well, logically it will," Finance Minister Miroslav Kalosuek
told Czech Television on Tuesday.
"If we take just the normal households, and how many brooms,
bleach and rubber gloves they must suddenly buy, that is demand.
There will also be demand in construction, demand in renewing
roads, higher demand for certain goods and services. And higher
demand is pro-growth."