the economic situation in central europe miroslav singer

Miroslav Singer – The Czech economy and its role in Europe1Miroslav Singer – The Czech economy and its role in Europe1Miroslav Singer – Význam Německa pro českou ekonomiku1Miroslav Singer – Economic developments globally and in Europe: the CNB view 1Miroslav Singer – Waiting with the Euro Adoption: The Czech case 1Miroslav Singer – Sound money: Czech experience 1Miroslav Singer – Czech Republic: Current Situation and Outlook 1Miroslav Singer – Inside or Outside the Euro Area1Miroslav Singer – Recent Developments in the Czech Economy, Risks and Outlook 1Miroslav Singer – Macroeconomic developments, monetary policy and financial sector 1Miroslav Singer – The Czech economy and crisis in Eurozone: CNB view 1Miroslav Singer – Czech economy and development in Europe: Outlook and Challenges 1Miroslav Singer – Czech Republic: Can record low rates be sustained? 1Miroslav Singer – Czech Republic: Future challenges and opportunities 1Miroslav Singer – Present Conditions, Monetary Policy and Outlook in Czech Republic 1Miroslav Singer - Czech Republic: Staying Ahead of the Curve with Regard to Monetary Policy 1Miroslav Singer: The economic and financial crisis from the point of view of the Czech banks 1Miroslav Singer: Financial Crisis: Impacts on the CR and Lessons for the Supervisors 1Miroslav Singer: Financial Crisis: Likely Impacts on the CR and Lessons for the SupervisorsMiroslav Singer: Present Conditions, Monetary Policy and Outlook for CR 1Miroslav Singer: Consumer protection in financial services: CNB approach 1

The Economic Situation in Central Europe

PricewaterhouseCoopers Prague, 10 September 2014

Miroslav SingerGovernor, Czech National Bank

Central Europe• Central Europe = Czech Republic, Slovakia, Poland, Hungary• Some common general features:

Catching-up economies Recipients of sizeable EU structural funds Relatively robust fiscal consolidation in recent years

• But also differences: Slovakia has euro (since 2009) – other countries not CNB uses exchange rate as monetary policy tool – others not Hungary had quite serious BoP problems (IMF rescue programmes)

and problems with household debt denominated in foreign currencies implementation of rather unusual government policies

Poland remained only country in EU with positive growth during crisis

Miroslav Singer – The Economic Situation in Central Europe 2

The Central European countries recorded uneven growth during the crisis

In 2013, GDP in Poland was 14.2 p.p. above the 2008 level, while GDP in Hungary was almost 5 p.p. below it

Source: Eurostat, own comp.

GDP in 2013 compared to 2008 (in p.p.)


Central Europe has been experiencing strong disinflation since late 2012; in Slovakia and Hungary inflation has even been negative in recent months

Source: Eurostat

Inflation in Central Europe (HICP)


Relatively robust fiscal consolidation has been going on in all the Central European countries since 2010

Structural budget balance in CE


Note: 2013 = European Commission forecast

Source: European Commission, 2014

Slovakia’s government debt doubled during the crisis, while Hungary’s rose only slightly; however, Hungary has the highest debt level in CE

Source: Eurostat, own comp.

Change in government debt in CE


Developments in Ukraine and Russia• Decline in confidence (lower FDI inflow, foreign savings outflow) • Depreciation of currencies:

Hryvnia/USD in August: 10.3% m-o-m and 60.4% y-o-yRouble/USD in August: 4.1% m-o-m and 9.5% y-o-y

• Inflation in August (y-o-y): Ukraine: 14.2% Russia: 7.6%

• interest rate hike to prop up currency and rein in inflation • GDP in 2Q2014 (y-o-y):

Ukraine: -4.7% Russia: 0.8%


The Ukrainian economy is set to contract by 5.6% and Russian economy to stagnate in 2014 (August 2014 Consensus Forecasts)

Ukraine and Russia: trade with theCzech Republic

• Foreign trade of CZ with Ukraine in 2013: Goods turnover: 0.9% of total Czech turnover During 2005–2013: usually small surplus Main Czech exports: machinery; imports: non-energy raw materials

Services turnover: 1% of total Czech turnover • Foreign trade of CZ with Russia in 2013:

Goods turnover: 4.5% of total Czech turnover During 2005–2013: usually large deficits Main Czech exports: machinery, cars; main imports: oil, gas

Services turnover: 2.7% of total Czech turnover


For the Czech economy, a deterioration in trade with Ukraine and Russia would mean a fall in machinery exports and tourism income; negative developments in Russia would have a much greater impact than negative developments in Ukraine

Ukraine and Russia: some implications• Czech oil imports are not dependent on pipelines from Russia

and Ukraine (unlike South-East Europe) • Adverse impacts on CZ could be strengthened via lower

economic activity in Germany (already happening), Slovakia and neighbouring economies

• Food “surplus” on European market (due to Russian embargo) downward pressure on prices (+ good harvest this year)

• Some banks operating in CZ have high credit exposure to Ukraine and Russia; further deterioration of situation (confiscation of money and property in extreme case) could have negative impacts on their operations there


The crisis could slow the emerging recovery; the key factors will be the future course of the crisis and the form of any further EU restrictions and Russian retaliatory measures

GDP forecast in selected regions

Central Europe will grow faster than South-East Europe and Western Europe this year and the next

Source: Eastern Europe Consensus Forecast, August 2014

1) Albania, Bosnia, Bulgaria, Croatia, Macedonia, Romania, Serbia2) Czech Republic, Hungary, Poland, Slovakia, Slovenia 3) Germany, France, UK, Italy, Austria, Belgium, Denmark, Finland, Greece, Ireland, Netherlands,

Norway, Portugal, Spain, Sweden, Switzerland

2014 2015South-East Europe 1) 1,9 2,6Central Europe 2) 2,9 3Western Europe 3) 1,5 1,8


GDP forecast in Central Europe

The Czech Republic and Slovakia will grow by around 3% this year and the next, while Poland will grow rather faster and Hungary rather more slowly; domestic demand will be a major growth factor

Source: CNB, Eastern Europe Consensus Forecast, August 2014


• Short-term risks in euro area: Slowing growth and possible return of recession Disinflationary and deflationary pressures Stepping up of sanctions against Russia Financial fragmentation and tension in banking sector

• Long-term risks in euro area: New normal (lower potential output growth) Rising debt burden (greater need for budget surpluses) Widening economic divergence in euro area

• Ukraine and Russia: Stepping up of conflict and deeper economic decline Russian restrictions on imports


Future risks

Developments in Ukraine and Russia may have major impacts on firms and sectors “dependent” on trade with those countries

Summary• Similar traits in CE countries during crisis: fiscal consolidation;

significant disinflation since end of 2012• Different traits: economic growth (PL versus HU); some economic

policies (strong government involvement in HU)• CE countries are experiencing relatively rapid recovery driven

increasingly by domestic demand• Main risk to CE is potential growth slowdown in euro area (in

extreme case: risk of economic contraction)• Escalation of Ukrainian crisis and further round of trade

sanctions against Russia could seriously affect firms dependent on exports to Russia and entire sectors risks of spill-over (and downward pressures on prices)

• Impacts on GDP growth: currently estimated at tenths of per cent CE countries have rather better preconditions for recovery and faster growth than advanced EU nationsMiroslav Singer – The Economic Situation in Central Europe 13

Thank you

Miroslav [email protected]: +420 224 412 000

Česká národní banka Na Příkopě 28 115 03 Praha 1


the economic situation in central europe miroslav singer

Documents