By Frances Robinson and Radoslav Tomek (Bloomberg 3. 7. 2009)
The Czech economy has "reached the bottom" and is set to bounce back by the end of the year, central bank board member Eva Zamrazilova said.
The export-oriented economy shrank 3.4 percent in the first quarter and is heading for its worst recession since regaining independence in 1993. Ceska Narodni Banka, the central bank, forecasts the economy will contract 2.4 percent in 2009, before advancing 1.4 percent a year later.
"We've reached the bottom, but the question is how long we'll remain there, whether it's one quarter or two quarters," Zamrazilova said in an interview in Basel on June 29. "We think the last quarter of this year will be better, and also that companies could be able to restructure a bit and find new destinations" for exports.
Policy makers kept the two-week repurchase rate unchanged at 1.5 percent at the June 25 meeting after slashing it to a record low on May 9. Governor Zdenek Tuma said after the most-recent decision that he sees the economy stabilizing and chances of a significantly deeper-than-projected slump are waning.
Zamrazilova joined three other policy makers in voting to keep the rate on hold last week, minutes from the meeting released today showed. Pavel Rezabek proposed a quarter-point cut in borrowing costs.
Economies Battered
The global recession is compounding problems in east European economies, which are being battered by a lack of credit, weakening currencies and plunging demand for their products on world markets. Czech output fell 21.7 percent in May, the eighth consecutive drop, as the value of new orders declined 27.6 percent. Economic sentiment worsened for the first time in four months in June as business expect less exports orders, while unemployment rises.
The Czech banking industry, though, has shaken off the global crisis with banks remaining profitable and "improving the results" of their foreign parent companies, she said.
To help avoid similar crises in the future, "stress tests" should be carried out on a national level, as well as within financial groups, she said, adding domestic supervisors of financial markets should be consolidated into one body across the European Union.
'Too Many Regulators'
"There are too many regulators in Europe, almost 80 bodies, I think that's too many," she said. "The first task should be to consolidate them into one politically independent body in each country. This body should be responsible, on a domestic level, for financial stability. Power and responsibility should go hand in hand."
Zamrazilova said that the weakening of the koruna from record highs last year has helped exporters stay competitive. Her remarks echo comments by Tuma, who said on July 1 the recent appreciation of the koruna won't hurt the economy as it remains "significantly" weaker than a year ago.
"From a longer-term perspective, I think the currency is roughly in line with our forecasts, it's not at levels that hit exporters nowadays," Zamrazilova said, adding she was speaking about this year's averages for the currency rather than the current level.
The koruna was trading at 25.917 against the euro at 12:43 p.m. in Prague, little changed from yesterday. Even as the currency gained 3.4 percent in the past month, it remains about 8.4 percent weaker than a year ago.
The Czechs still do not have a target date for adopting the euro, a condition of its 2004 accession to the European Union, and having a national currency has given the country "some flexibility," which has so far worked "quite well," Zamrazilova said.
Euro entry is "out of play for a couple of years" as the budget deficit is forecast to stay above the limit for the switchover set at 3 percent of gross domestic product, she added.