Prague stock exchange falls amid global jitters over US economy

Photo: CTK

Stock markets around the world fell sharply on Monday amid fears of a looming recession in the United States. The Prague Stock Exchange was no exception. The PX’s main index ended trading down 4.62 percent at 1,489.6 points, its lowest closing figure for the last 15 months. The markets still appeared jittery on Tuesday, as nervous traders waited for Wall Street to reopen. So why does what happens 6,500 kilometres away in the United States have such an effect on the economic pulse of markets far, far away such as the Czech Republic? That’s a question we put to Tomáš Sedláček, Chief Economic Strategist at ČSOB bank.

“We’re living in a global world where literally a piece of information at one end of the globe affects the other end in a fraction of a second. All markets are interconnected today, not only via the internet and via communication, but one market affects the other almost instantly.”

So in other words, when the United States sneezes, the rest of us a catch a cold?

“That is true, but it’s not as valid as it used to be, say, a decade ago. Now this is true of virtually every country in the world. No man is an island, and if a little part is affected, the whole world suffers.”

What long-term effects will the problems in the U.S. economy have on the Czech economy? Will there even be any long-term effects?

“The effects of the American economy on the Czech Republic will mainly be seen through the effect on European economies, mainly Germany. Czech trade isn’t as strong as to affect us significantly. If, however, American growth should slow down, and it’s very likely that it will, I think the focus of the attention of the global economies will shift elsewhere and the whole world will see a slowdown in growth. Not as significantly as a decade ago, but significantly still.”

Are there any silver linings in this cloud for us here in Europe, here in the Czech Republic, or is it all bad news?

“Well, a weak dollar, or a weak euro against the crown is good news for Czech consumers, but it’s bad news for Czech exporters. Czech products abroad are becoming more and more expensive, and Czech companies that export – which is the vast majority of them – are under pressure to either increase competitiveness or lower costs, so that could also affect our economy quite strongly.”

Photo: CTK
There are still a few people around who remember the last great world recession of the 1920s and 1930s, caused by the Great Depression in the United States. Could it happen again, and is there anything we can do to stop it?

“I think the world is much more advanced nowadays. Our instruments of political and economic steering seem to be a little more resistant towards crises, such as the crisis of the 20s and 30s. This depression should be milder. However, today, the world, and America, and Europe is far more indebted than it used to be, so it is very hard to see what will happen. Because we are already indebted, we have lost the cushion on which to soft land in case a crisis comes. So this is very difficult to predict.”