How could rouble’s troubles impact Czech economy?

With low oil prices and EU sanctions hitting the Russian economy hard, the country’s currency the rouble tumbled to a record low against the U.S. dollar on Tuesday. Interventions by Moscow, including a steep hike in interest rates, have led to a slight recovery on Wednesday, though trading was still described as volatile. Given that some 4 percent of the Czech Republic’s exports go to Russia, what impact could the rouble’s problems have on the Czech economy? That’s a question I put to David Marek, chief economist at the Czech branch of Deloitte.

David Marek, photo: Šárka Ševčíková

“I would guess that the most important influence on the Czech economy would be through declining imports to Russia. On the basis of our share of Russian imports, I would see a possible impact on Czech GDP in terms of 0.2 to 0.5 in the coming year.”

What industries in particular in the Czech Republic are likely to be hit, do you think?

“The most impacted could be machinery, because machinery products have the biggest share of Czech exports to Russia. So industrial products, especially machinery products.”

But aren’t Czech companies doing business with Russia already being affected by the EU sanctions imposed over Russia’s actions towards Ukraine?

“It’s true that we can already see the impact of the EU sanctions against Russia. For example in October we saw exports to Russia declining by almost 20 percent on a year-by-year basis.”

Even before Russia’s annexation of Crimea the country’s economy was already in trouble and I guess doing business there has been risky for a long time. Are there mechanisms in place under which Czech firms can guarantee that they receive payment? Like for instance some kind of insurance?

Illustrative photo: fishtik / freeimages

“It could be difficult especially for companies exporting to Russia without insurance. It’s possible to get export insurance as support provided by the Czech government, but some exports are not covered by such insurance. In some cases we can see that payments are postponed or in some cases not delivered at all.”

I know it’s not your area exactly, but how do you think the situation in Russia will play out? What do you think will happen with the rouble in the coming days and weeks?

“It’s hard to predict because we are still in a period of turbulence. Looking back to the previous Russian crisis, in 1998, we could still be at the beginning of something much bigger. Without a different approach by Putin’s government towards Ukraine and Western countries, and with a further fall in oil prices, Russia can suffer much more.”