Central bank chief: Economy in good shape to face global downturn

Jiří Rusnok, Andrej Babiš, photo: ČTK/Michal Krumphanzl

The Czech economy is in relatively good condition to face a potential global economic downturn, the governor of the Czech National Bank, Jiří Rusnok, said on Czech Television on Wednesday.

Jiří Rusnok,  Andrej Babiš,  photo: ČTK/Michal Krumphanzl
The country has very low debts, its banks are in fine shape and it possesses large foreign exchange reserves and its own currency, he said on the programme Interview.

Mr. Rusnok also said the Czech economy had sufficient “fiscal space”, with the government able to offset any decline in household demand by an increase in its own expenditures.

The central bank chief said he had no doubt that a time would come when the government would have to make serious decisions. He said the current planned budget deficit (CZK 40 billion for 2020) was a theoretical figure and would undoubtedly be higher in reality.

Mr. Rusnok drew a comparison between the current coronavirus crisis and serious flooding that has hit the Czech Republic in the past. The water is now rising, he told Czech Television, but it is not clear what the final damage or number of victims would be.

The one-time caretaker prime minister said the Czech National Bank was now working on the basis of a number of different development scenarios which were being tweaked daily.

However, it does not have very detailed data with which to draw conclusions, he said.

Mr. Rusnok said a collapse similar to that of the financial crisis in the late 2000s, when percentage points were knocked off GDP growth, would represent a disaster scenario. He said there was no evidence to back up this likelihood but said nothing could be ruled out.

A less drastic scenario would see the Czech economy continuing to expand but at a rate close to zero, instead of the 2 percent or so previously envisaged, he said.

At around 30 percent of gross domestic product, the Czech Republic’s debt is very low, relatively speaking.

Germany’s debt stands at around 60 percent of GDP, a number of states are hovering between 80 and 100 percent in this regard and Greece is at around 170 percent.

Mr. Rusnok pointed out that the Czech banking sector had a liquidity surplus and large capital reserves. The latter are among the largest in the world by size of economy.

The Czech National Bank boss said the fact that the country has its own currency was a benefit in that the crown could serve as a kind of buffer in times of fluctuation.