Research (Investicniweb.cz)
Macroeconomics  |  September 23, 2012 12:01:23

Czech is relatively calm harbor and fall Nečas government would be positive for the economy



Efforts cuts is appreciated turbulent situation in the world and the related slowdown in the Czech economy, now in charge of tightening belts so hurry. Neither is any zero rate does not provide sufficient incentive. Living water is therefore a need to look in the fiscal sphere. I therefore possible fall Nečas government and the advent of socialists who do not want to save so zealously, could have on the Czech economy transient slightly positive impact, says an analyst at Bank of America in London Mai Doan interview Investment web.

Let's say that the government of Prime Minister Necas really fits. How great would it be a problem for the Czech economy, how much would it marked the turbulence that would likely follow?

Mai Doan (MD): Our baseline scenario assumes that the government hold on power. It's not the first time that the Prime Minister trying to force similar to the Members of his party or coalition partners to support the austerity measures. On the other hand, it is true that this time it's a little different - approaching the regional elections and Congress ODS - so now it really can be a bit difficult. Yet, in our opinion the most likely to succeed. If not, we expect that they will follow early elections and to be able to get Social Democrats.

What you would from any new government socialists expect?

MD: There would be some changes, of course. Both sides see certain things differently. In the past, in addition socialists resorted to some populist proclamations. On the other hand, I do not think it would have decided to completely change the plans for fiscal consolidation and reduce the budget zchodku. It would probably be dropped from the table and pension reform package containing tax increases, deficit, however, tried to keep the interval that dictates European convergence criteria. This means that the next year got under 3%. The Social Democrats are in fact pro-European, which should have worked as a fuse.

How would the eventual fall of the current Czech government - and the emergence of new ones - have responded markets?

MD: For a short time it appeared negative sentiment, which would affect the view of the Czech Republic. I note, however, that still count on the fact that early elections will, of which we use. Second, even if they occurred, and the Socialists won by us will strive to reduce the budget deficit. The situation in the Czech Republic - or look at her - so definitely permanently worse. It will continue to be that for the Czech economy and the currency is determined by the situation in Europe. Key steps are the ECB and how it is evolving crisis in the eurozone.

The fall of the current government and the advent of Socialists came to power, therefore, the economy and the GDP impact not?

MD: What GDP is concerned, I think it does not have a major negative impact. Conversely, the advent of Socialists and their less drastic belt-tightening efforts could even take on the Czech economy in 2013, slightly positive impact.This is also suggested in the report of the International Monetary Fund. She says that the Czech Republic does not fulfill all the austerity measures it planned to Prime Minister promised. In this sense, there is simply space.

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  • So what should the government - either the current or any new - supposed to do? What would you advise?

    MD: Promises of fiscal consolidation and savings markets now undoubtedly welcome. The steps that the government has done since 2010, shows that Prime Minister Necas with reducing deficits seriously. On the other hand, due to the European crisis, I think there is room that allows you to slow down in this area and support the economy. Take, as weak domestic demand, and the fact that the Czech Republic is in recession. Monetary policy does not help much, the rates are already so low. And so might the pace with which the tightening their belts, it could slow down a bit.

    How significant slowdown would not you think the government could afford?

    MD: I think that if this slowdown came in the interval 0.5 to 1% of GDP, the markets would not Czech for him not to punish. Work stems from the fact that the government has indeed fulfilled its duties conscientiously, and also from the fact that they manage to finance the deficit largely from domestic sources. Czech banks and pension funds are based on the available signals enough money so they could satisfy the needs of the state domestic resources.

    At present, the popular combination of fiscal consolidation and monetary easing. As you said, in the Czech Republic already, the central bank can not do much. Nevertheless, do you try something?

    MD: Yes, among other things over the last few months, quite clearly signaled and board members. The first step will be to lower rates. From what councilors said it is apparent that it does not even zero rates.Whatever goes beyond this horizon, then it is very uncertain. Those options out there or not much. If we take into consideration the liquidity situation in the banking sector, there would be quantitative easing in the case of the Czech economy is not very effective. Key for her confidence in the private sector and export. I remember that one of the board members talked about the possibility of target remote part of the yield curve. The question is, how effective would be something similar. I see it, that even if the bank is reluctant to intervene in the market, it would be one of the effective ways to support the economy now.

    Renee, the CNB decided to zero interest rate. How much does it manifest itself?

    MD: As regards the approach of commercial banks to the private sector, so that I think too much influence would. Margin of interest rates had been significantly reduced.And as in the previous cases, the action the central bank behavior of commercial banks was not much influenced. Somehow it occurs, but it will not be significant. I might add that it would be about 50 basis points, and it certainly will not be as much a central bank would need in order to stimulate the economy.

    How does Mai Doanová Czech crown and what the economy would be in the region deal with the best possible "Lehman Brothers 2" can be found on web Investment

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