Czech economy will fall by up to 8 percent, former Central Crisis Staff advisor says

Foto: Scouse Smurf, Flickr, CC BY-ND 2.0

The downfall in the Czech economy will be higher than generally expected, contracting by 7.5 to 8 percent of GDP, leading Czech economist Jan Švejnar said in an interview with the Czech News Agency published on Wednesday. According to Mr Švejnar, the recession could reach double digits if a second coronavirus wave were to hit.

Alena Schillerová,  photo: ČTK / Michal Krumphanzl

In April, the Czech Ministry of Finance projected that the Czech economy would contract by 5.6 percent this year, primarily due to the effects of the coronavirus pandemic.

On Wednesday, Finance Minister Alena Schillerová said that the recession is likely to actually be higher than the April projection. Unwilling to provide a different number, she did call the recently published OECD estimate, which expects the Czech economy to fall by 9.6 percent in 2020, “a very black scenario”.

According to Jan Švejnar, who led the economic advisory team to the government’s Central Crisis Staff during the height of the pandemic in the country, the real number is likely to lie between 7.5 to 8 percent of GDP. However, if a so-called “second wave” of the virus were to arrive later in the year, Czech GDP could contract by double digit numbers.

Photo: Marco Verch,  Flickr,  CC BY 2.0

Speaking to the Czech News Agency, he said the contraction of the economy is very dependent on the global situation. Mr Švejnar is sceptical about the possibility of a swift global economic conjecture. Rather, he believes that although a post-lockdown rise is to be expected, all of the world’s economies will be weaker than they were before the coronavirus.

According to the former government advisor, who is also the director of the IDEA think-tank at the Czech Academy of Sciences, the total planned government help for Czech businesses recovering from lockdown is among the best in Europe, but was also too late to start. Its “realisation was slow and remains stalled”, he told the Czech News Agency.

Jan Švejnar,  photo: Adam Kebrt,  Czech Radio

According to the Ministry of Finance, the total measures taken to support the economy amounted to CZK 1.13 trillion at the beginning of May, more than 20.4 percent of the country’s total GDP. These have since been slightly increased.

The Czech Republic entered the coronavirus crisis with a low level of government debt and therefore its state budget policy can be more vigorous than in many other states. However, it is necessary to follow this up with a clever investment policy and keep as many promising businesses alive as possible. This would enable the short-term increase in debt to be covered in the medium-term, Mr Švejnar said.

A new macroeconomic projection of how the Czech economy will fare in 2020 is likely to be released no sooner than August 10, Finance Minister Schillerová said on Wednesday. She also stated that the Czech economy is faring relatively well in global comparison.