Czech C/A in deficit under new method, may hit crown

                                
 * Data reflects new foreign trade calculation
                                
 * Worse deficit may weaken CZK, or make it more volatile
                                
 
                                
 By Jana Mlcochova
                                
 PRAGUE, March 14 (Reuters) - The Czech current account
showed a 0.31 billion crown deficit in January on a large
revision that cut the trade surplus and analysts said this could
make the crown currency volatile or weaken it in the mid-term.
                                
 A potentially weaker currency, along with an expected
pick-up in domestic demand, may eventually push the Czech
central bank to raise interest rates, economists said.
                                
 The bank did not say what the January result would have been
without the revision. Last week, it revised 2009 and 2010
current account data following a change in methodology by the
statistics office in calculating the foreign trade balance.
                                
 The revision showed a steep rise in deficits in both years
and translated into a deficit of 139.2 billion crowns ($25.2
billion), or 3.8 percent of gross domestic product, at the end
of December, much larger than the originally reported 92.9
billion crowns, or 2.6 percent of GDP.
                                
 "The change of important macroeconomic variables ... is
likely to have a negative impact on the crown over the medium
term," said Miroslav Plojhar, an EMEA economist at JP Morgan.
                                
 "We do not think it will completely change the long-term
convergence story of a strengthening crown. But it will show
current crown strength may be a bit overdone." <EURCZK=><CZK=>
                                
 The statistics office began to release data on foreign trade
in goods this month calculated according to methodology which
excludes branding, or margins paid to companies that are not
Czech and are merely registered in the country to pay value
added tax (VAT).
                                
 It now looks at changes in ownership of goods between
residents and non-residents. It is calculated on the basis of
value-added, or sales, tax reports.
                                
 The office said it had excluded import and export values for
branding that had artificially inflated the goods trade surplus
and weakened the services balance. The change was intended to be
neutral but in practice under the new calculation method the
central bank found the true value attached to branding as a
services import was greater than it had estimated.
                                
 Plojhar said many funds had made their investment decisions
based on models which included key data from each country and
did not look in depth into individual countries' macroeconomics.
                                
 "(The new data) makes the crown prone to higher volatility
and sensitivity because it is showing that the external
imbalance is larger than thought," said David Marek, a chief
analysts at Patria Finance.
                                
 Plojhar added a potentially weaker crown combined with
stronger domestic demand "may change the central bank's view on
the appropriate level of interest rates. This would support our
case of higher-than-priced-in interest rates over the medium
term."
                                
 The crown shrugged off the data on Monday, trading at 24.33
per euro following the data release, marginally weaker from
24.32 ahead of the data release.
                                
 (Editing by Ruth Pitchford)