Outlook for the Czech Economy and the Eurozone (Video)

It’s been anything but smooth sailing for the Czech economy and financial markets lately. As Reuters reported earlier this month, the central European economy has been in decline or stagnation for more than a year and a half. Meanwhile, this year through 10 April, the country’s benchmark equity index dropped 6.8% in local currency terms (10.4% in US dollar terms), notching a worse performance than comparable indices in neighbors Poland and Hungary. Still, signs of an economic turnaround may be in the offing. Against this backdrop, the CFA Society Czech Republic convened three experts — Jesper Berg, vice president of the Danish financial services group Nykredit Realkredit; Miroslav Singer, governor of the Czech National Bank (CNB); and Tomáš Sedláček, a renowned Czech economist — for a forecasting event. The panelists discussed prospects for the Czech economy, the eurozone, and lessons from the financial crisis.

Nykredit Realkredit’s Berg said that the financial crisis was triggered by macroeconomic policies, the tendency of the financial system to create booms and busts, and the failure of all “checks and balances.” As a result, he noted, we are now seeing a tightening of financial regulation. Although that makes sense for the long run, he added, the timing is unfortunate given that fiscal and monetary policy are stretched thin. “At the European level we have gone from a situation, where the banks have dragged down sovereigns to a situation where sovereigns have dragged down banks,” he said.

Singer focused on the domestic economy. The CNB assumes “the domestic economy is in a cyclical trough at the moment,” he said. “Economic growth should resume this year, and we expect it to reach approximately 2% for the whole of next year. The economy will act in a counter-inflationary manner through the first half of 2014. However, the CNB will not start hiking rates until inflationary pressures pick up substantially.”

Sedláček argued that the Czech economy is depressed, echoing comments that he made at the CFA Institute European Investment Conference in Prague last year, where he argued that there are parallels between how a depressed economy is treated by economists and how a depressed patient is treated by doctors. An excerpt:

It is said that the economy is depressed. That is just the one side of the story. Economy is misdiagnosed, it is manic depressed. Where is this mistake leading us? If we ask questions such as: ‘Is capitalism working? How to get back on a growth path?’ Well, first of all we should ask whether we ask right questions. Is capitalism working the way we want it to work? Why do we need growth? Isn’t it just a fetish we created on the way to ‘paradise’?

You can watch the entire forecasting discussion below:

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