Transcript M. Singer - Czech Republic

The Czech Republic:
Future challenges and
possible risks
Miroslav Singer
Vice-Governor, Czech National Bank
OECD, Seminar “20 Years After”
Paris, 20 November 2009
M.
-– Czech
Czech
Present
Republic:
Republic:
Conditions,
Staying
Future
Monetary
challenges
Ahead
of
the
and
and
Curve
opportunities
Outlook
with
Regard
inview
Czech
to the
Republic
Monetary
Policy
M.
Singer:
Financial
Crisis:
Likely
Impacts
on
the
CR
and
Lessons
for
Supervisors
M.Singer
M.
Singer:
Singer:
The
Financial
Present
Consumer
economic
Crisis:
Conditions,
and
protection
Impacts
financial
onMonetary
crisis
the
inPolicy
CR
financial
from
and
the
Policy
Lessons
point
services:
and
of
for
the
Outlook
CNB
Supervisors
of
the
approach
Czech
for CR
banks
11
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Contents
• Economic performance of Czech economy
during crisis
• CNB forecast
• Challenges and possible risks
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GDP growth: q-o-q
3
2,5
1,81,7 1,81,71,91,6
1,6
1,6
1,5
1,4
1,4
1,3
1,2
1,2
1,2
1,2
1,1
1,0
0,9
0,7
0,7
1
0,50,5
0,5
0,3
0,1
0,1
0,0
q-o-q change in %
2
1,5
1,0
0,2
1,2
0,1
0,5
0,1
0
-1
-1,3
-2
-3
-4
-5
-4,8
-6
00/I
III
01/I
III
02/I
III
03/I
III
04/I
III
05/I
III
06/I
III
07/I
III
08/I
III
09/I
III
Source: CZSO
Technically, the recession stopped in 2009 Q2
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Cumulative GDP q-o-q growth:
3Q2008-2Q2009 (not seasonally adjusted)
10
7,4
5
2,7
1,4
0,4
0
-0,9
-2,7 -3,1
-5
-3,6 -3,6 -3,8 -3,9
-4,9 -5,2 -5,3 -5,3
-5,4
-5,9 -5,9
-6
-6,1
-7,1 -7,3 -7,5
-8,9
-10
-9
-15
-15,2
-15,7
-18,6
-20
R
PL
BG
GR CYP MAL
F
B
SK
PT
E
AT
NL
CZ
L
EU27
H
UK
S
I
D
DK IRL SLO SF LAT EST LIT
Source: Eurostat, own computation
The cumulative q-o-q GDP decline in the Czech
Republic was comparable with the EU-27 average
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M. Singer – Czech Republic: Future challenges and opportunities
IX.09
VIII.09
VII.09
VI.09
V.09
IV.09
III.09
II.09
I.09
XII.08
XI.08
X.08
IX.08
VIII.08
VII.08
VI.08
V.08
IV.08
III.08
II.08
I.08
XII.07
XI.07
X.07
IX.07
VIII.07
VII.07
VI.07
V.07
IV.07
III.07
II.07
I.07
y-o-y in %
Manufacturing
30
20
10
0
-10
-20
-30
Source: CZSO
The decline in manufacturing output seems to have
bottomed out in mid-2009
5
Exports, imports and trade balance
(annual percentage changes; percentage points; constant
prices; seasonally adjusted data)
20
15
10
5
0
-5
-10
-15
-20
I/06
II
III
IV
I/07
II
III
IV
I/08
II
III
IV
I/09
II
Exports of goods and services
Imports of goods and services
Difference betw een export grow th and import grow th (in p.p.)
Source: CZSO
The decline in total foreign trade turnover was still
marked in 2009 Q2
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Inflation
(y-o-y in %)
8
7
6
5
4
3
2
1
0
-1
1/07
4
7
10
1/08
4
7
10
1/09
4
7
Consumer price inflation
Monetary-policy relevant inflation
Source: CZSO
Annual inflation fell towards zero in 2009 Q3
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22
M. Singer – Czech Republic: Future challenges and opportunities
2009m11d05
2009m10d15
2009m09d24
2009m09d03
2009m08d13
2009m07d23
2009m07d02
2009m06d11
2009m05d21
2009m04d29
2009m04d08
2009m03d18
2009m02d25
2009m02d04
2009m01d14
2008m12d23
2008m12d02
2008m11d11
2008m10d21
2008m09d30
2008m09d09
2008m08d19
2008m07d29
2008m07d08
2008m06d17
2008m05d27
2008m05d06
2008m04d14
2008m03d24
2008m03d03
2008m02d11
2008m01d21
2007m12d28
2007m12d07
2007m11d16
2007m10d26
2007m10d05
2007m09d14
2007m08d24
2007m08d03
2007m07d13
2007m06d22
2007m06d01
2007m05d11
2007m04d19
2007m03d27
2007m03d06
2007m02d13
2007m01d23
2007m01d02
CZK/EUR
(1 Jan 2007-17 Nov 2009)
30
29
28
27
26
25
24
23
Source: Eurostat
After appreciating in July 2008 and depreciating in
February 2009, the koruna has returned to its
previous trend
8
CNB’s key rates
5
4
3
2
1
0
9/08 10
11
12 1/09
Lombard rate
2
3
4
5
2W repo rate
6
7
8
9
10
Discount rate
Source: CNB
To deal with the strong disinflationary pressures, the
CNB has lowered its interest rates to a record low
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State budget balance
Source:
Ministry of
Finance
60
2007
40
2008
2009
36,3
19,7
27,2
22,2
12,8
20
1,3
0
9,7
-26,0
-20
bn CZK
9,3
-17,0
5,3
10,5
10,9
-5,7
-6,5
-20,0
-28,1
-40
-38,3
-60
-55,7
-80
-71,4
-68,3
-66,4
-76,2
-100
-89,6
-87,3
-120
-140
Note: GFS 1986
-138,1
-160
1
2
3
4
5
6
7
8
9
10
11
12
The economic crisis and earlier fiscal measures are
reflected in a deteriorating state budget balance
(vs. surpluses in 2007 and 2008)
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Loans to non-financial corporations
and households (y-o-y change in %)
40
30
20
10
0
-10
1/05
1/06
1/07
1/08
Loans, total
Loans to non-financial corporations
Loans to households
1/09
Source: CNB
Loans to non-financial corporations declined year
on year for the first time since 2005
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Newly extended loans
(y-o-y change in %)
50
40
30
20
10
0
-10
-20
1/05
1/06
1/07
1/08
1/09
Loans, total
Loans to non-financial corporations
Loans to households
Source: CNB
New loans to non-financial corporations and
households decreased
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Non-performing loans
(% of total loans in segment)
10
8
6
4
2
0
1/06
1/07
1/08
1/09
Non-financial corporations
Lending to individuals for house purchase
Consumer credit to individuals
Loans to individuals
Total loans
Source: CNB
Non-performing loan ratios rose most significantly
in non-financial corporations
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Summary
• Financial and economic crisis was imported into Czech Republic
• Czech economy was slightly overheated before crisis, but generally at
macroeconomic equilibrium (low inflation, anchored expectations)
• Monetary-policy and macroeconomic framework (inflation targeting
and managed float) provided economy with necessary adjustment
mechanisms  own currency proved to be advantage in crisis
• Main cause of vulnerability of economy: high export dependence
• Domestic banking sector was in good condition before crisis: banks
were well capitalised and profitable (negligible share of toxic assets)
• Financial sector did not amplify impacts of crisis on economy and will
not be source of major risks going forward
• Stress tests: strong resilience, profitability, sufficient capital adequacy
The Czech economy is currently coping with the crisis
better than many other advanced European countries
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CNB Forecast
(November 2009)
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GDP growth forecast
(annual percentage changes; seasonally adjusted)
8
6
4
2
0
-2
-4
-6
-8
IV/07 I/08
90%
II
III
70%
IV I/09
II
50%
III
IV
I/10
II
III
IV
30% confidence interval
I/11
II
Source: CNB
After a decline in economic activity this year a moderate
recovery will take place in late 2009 and early 2010
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Headline inflation forecast
(annual percentage changes)
8
Monetary
policy
horizon
6
4
Inflation target
2
0
-2
IV/07 I/08
II
90%
III
IV
70%
I/09
II
50%
III
IV
I/10
II
III
30% confidence interval
IV I/11
II
Source: CNB
At the monetary policy horizon, the headline inflation
forecast is slightly above the inflation target
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Main uncertainties in short run
• What will course and intensity of recovery look like
internationally and in Czech Republic’s major trading
partners? W-shaped?
• How strong are disinflation pressures (external inflation,
nominal wages, domestic demand)?
• How will Czech public finances develop in 2010 and 2011?
• How will koruna exchange rate develop?
• How effective is monetary policy transmission mechanism?
Huge uncertainty still surrounds economic developments
and monetary policy-making going forward
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Challenges and possible risks
• Domestic: Fiscal policy
• External:


Protracted and painful recovery in Europe
Hasty supervision and regulation changes
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Long-neglected fiscal problems
• High share of mandatory or quasi-mandatory expenditures
in total expenditures (above 70%)
• No pension reform or healthcare reform (ageing!)
• Lack of transparency in budgetary process
• Atomisation of public budgets
• Lack of audit of state funds
Despite significant steps approved recently by
parliament, the fiscal area represents the most
serious macroeconomic risk going forward (persisting
deficits even in good times and rapid growth in debt)
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Public finance deficits
2004
2005
2006
2007
2008
2009
2010
2011
2012
-5,6%
-5,5%
0%
-0,7%
-1%
-2%
As % of GDP
-2,0%
-3%
-4%
-2,6%
-2,9%
-3,6%
-5%
-4,9%
-6%
-6,0%
-7%
Note: ESA 95
Source: CNB computation, November 2009 forecast
Public finance deficits will fluctuate between 5%
and 6% of GDP over the next few years
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Public debt
(as % of GDP)
50
43,2
45
39,2
40
35,7
As % of GDP
35
28,2
30
29,8
30,1
29,7
29,4
29
30
2003
2004
2005
2006
2007
2008
24,9
25
20
15
10
5
0
2001
2002
2009
2010
2011
Source: CNB computation, November forecast
After a period of stability public debt is expected to
grow rapidly after 2008
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GDP
(2000 = 100)
145
140
CR
EU-27
USA
135
125
120
115
110
105
100
95
20
00
q
20 01
00
q
20 03
01
q
20 01
01
q
20 03
02
q
20 01
02
q
20 03
03
q
20 01
03
q
20 03
04
q
20 01
04
q
20 03
05
q
20 01
05
q
20 03
06
q
20 01
06
q
20 03
07
q
20 01
07
q
20 03
08
q
20 01
08
q
20 03
09
q
20 01
09
q0
3
2000 = 100
130
Source: Eurostat
The longer term danger for Europe is still its too sluggish growth
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Current problems in financial market
supervision
• Planned European Systemic Risk Board at ECB and European
financial supervision system may blur division of labour among
existing supervisory authorities
• Instead of precisely defining and identifying causes of crisis,
illusion being created that more supranational supervision and
regulation is guarantee against future repetition of crisis
• Risk: if supervision is distanced from national level, current
unsatisfactory state of affairs will deteriorate even further
• Other topical issues put on back burner (cost-sharing)
• Overregulation of the sector may further decrease the EU‘s
growth potential.
The past problems of Czech banks impacted “fairly” on
Czech taxpayers, but in the future external problems might
impact on them through no fault of their own!
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Five violated principles – what the
current plans neglect/worsen
1. Uncertainty is fundamental (diversifying supervisory/regulatory
policies reduces risks arising from fundamental uncertainty)
2. Positive motivation (eliminated value of banking licences for
shareholders and profitability of traditional areas of banking)
3. Unpredictable response (regulated/supervised entities always
react [rather] differently than reformers intend)
4. Communication of costs (costs often not even discussed at expert
level, never mind communicated by politicians to voters)
5. Manageable number of institutions (any unification, or even just
improvement of coordination, of supervisory/regulatory
institutions at European level requires progress with integration
of 80 or so institutions at national level)
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Conclusions
• Risk of long-term fiscal
“inaction” (structural deficit)
currently being compounded by economic decline (cyclical
deficit) and potentially by political stalemate in future
• Due to high export intensity of the Czech economy a
sluggish recovery in Europe will impose an impediment on
domestic recovery
• Hasty changes in financial market regulation and
supervision may present future risks to financial stability of
Czech economy (any mistakes in globalised supervision
could be far-reaching and could even trigger new crisis) or
to the growth in Europe.
While the fiscal risk is domestic (and therefore
influenceable), the risks of pan-European supervision
are external (and therefore hard to influence)
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Thank you
Miroslav Singer
[email protected]
Tel: +421 224 412 008
Česká národní banka
Na příkopě 28
115 03 Praha 1
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