The figure compared with a revised 5.9% rate in the Q3, and was the slowest in almost two years, the Prague-based statistics office said today. GDP for all last year equaled a 6.1% pace in 2005. The $150 billion economy, the second-largest of the European Union’s eastern members, is losing steam after export-oriented plants owned by companies such as Toyota Motor Co. and PSA Peugeot Citroen hit full capacity, capping growth. Exports, the engine of growth since EU entry in 2004, are giving way to rising household consumption that is bolstering imports at the same time.

The figure „confirms that the Czech economy has already peaked,” said Ales Michl, an economist at Raiffeisenbank AS in Prague. „The three key factors of growth are household consumption from a short-term perspective and investments along with contained inflation from a long-term point of view.” The data exceeded the median estimate of 5.4% by 13 economists in a Bloomberg survey.

The koruna traded at 28.13 per euro by 1 p.m. in Prague, unchanged yesterday. The ask yield on the 6.95% due 2016 rose 0.01 percentage point to 3.71%. The price shed 0.1, or 10 koruna per 10,000 ($467) koruna face amount, to 124.05, according to Ceska Sporitelna AS prices. Imports of goods and services, calculated in constant prices, grew 18.1% from a year earlier, outpacing exports with 17.4% growth. While the trade surplus swelled by 5.4 billion koruna in current prices, it deteriorated when adjusted for sliding import prices as oil costs are shrinking. Falling net exports „is a cost of a swift growth of domestic demand and export production being increasingly dependent on imports of raw materials and semi-finished goods,” said David Marek, the chief economist at Patria Finance AS in Prague. Household spending increased 5.4%, the fastest pace in three years, as signaled by a 4.6% inflation-adjusted wage growth and the employment rate rising to 65.6% from 65.1% a year earlier. It accounted for 40% of overall GDP growth, Patria’s Marek said.

Creation of fixed gross capital rose an annual 7.6%, down from 8% in the Q3. Continuation of fast expansion of corporate investments was signaled by a 19% jump in machinery and vehicles imports and construction output soaring 9.5% on warmer-than-usual weather and a mortgage boom. Factories built or taken over mostly by foreign companies over the past decade, including Siemens AG, had caused a jump in exports after the country joined EU in 2004. That effect is waning, being countered by rising imports of consumer goods and technologies for other direct investment projects such as from IPS Alpha Technology of Japan.

The Peugeot-Citroen-Toyota car-assembly plant, located in the town of Kolin, opened in February 2005 with an annual production target of 300,000 vehicles. It raised its daily output to 1,100 cars in October 2005, eliminating room for a jump in exports in the last three months of 2006 as in previous periods. Inventories increased by 4.9 billion koruna (€174 million) from a year earlier. The government spent 2.6% more from October through December, the first increase in three quarters, the office said.

The expansion was still almost double the pace of the 12 nations that shared the euro last year, allowing the Czechs to catch up with the western economies. Czech GDP per capita, measured by purchasing power, represented 76% of the average of the 25 EU members last year, after 74% in 2005, according to economist estimates. Even though growth will slide below 5% this year, the growing influence of consumer spending will prompt the central bank to lift borrowing costs in the H2, economists said. The main interest rate, at 2.5% since September, is the lowest within the EU and the third-lowest in the world. „While GDP growth close to 6% is good news for markets, the structure, driven mainly by consumer spending, creates underlying inflationary pressures,” said Miroslav Plojhar, the chief economist at Citibank AS in Prague.

Economic growth was 0.1 percentage point faster than the policy makers had expected, the central bank said on its Web site. The structure of growth did not differ much from what the central bank had forecast, it said. While household and government consumption was faster than projected, the central bank had predicted a less negative impact of net exports on economic growth. The rest was in line with the institution’s forecast, it said. The central bank counts on GDP advancing 5.3% this year and 4.8% in 2008. That is similar to the Finance Ministry’s outlook for 5% growth over the next two years.

Growth in neighboring Slovakia, which broke from the Czech Republic in 1993, was 9.6% in the Q4, while the expansion in Estonia and Latvia, two former Soviet republics, surpassed 11%. Poland, with the largest economy among the EU’s eastern states, posted growth of 6.4%. Hungary was the only country in the region tracking the Czechs with 3.2% growth.

„The Czech economy will probably return to a record pace from 2005 and 2006 only after a new Hyundai factory begins production planned for 2009,” said Petr Dufek, an economist at Ceskoslovenska Obchodni Banka AS in Prague. Before adding to GDP growth, a $1 billion plant by Hyundai Motor Co., construction of which will start next month, will curb GDP expansion by boosting imports of technologies. (Bloomberg)