Second wave means worse economic outlook but restrictions seen less impactful than in spring

Photo: ČTK/Kateřina Šulová

The crisis surrounding Covid-19 is likely to cause the Czech economy to contract by around 8.5 percent this year, according to economists cited by the Czech News Agency. Prior to the current, second wave of the virus, a fall in gross domestic product of 6.5 to 7 percent had been forecast.

Though the numbers infected and hospitalised are far higher than in spring, experts say that the economic situation is not as bad at present as major firms have not halted production and the cross-border movement of goods and services has not been impacted.

That said, some economists warn that many firms may find themselves in deeper hot water than earlier in the year, in view of the fact that their reserves have been depleted.

The chief economist at the local branch of Deloitte, David Marek, told the Czech News Agency that said in some regards the situation now was comparable to in spring, mainly in regard to the extent of the coronavirus restrictions.

David Marek,  photo: Jana Trpišovská,  Czech Radio

However, in other ways it is different, with a better economic situation internationally; the Czech Republic’s most important trading partners have not so far been forced to introduce the severe restrictions seen earlier in 2020 and that should benefit the Czech economy, Mr. Marek said.

Raiffeisenbank’s chief economist, Helena Horská, warned that the downturn facing the Czech economy could be in the double figures. She said many enterprises had run out of reserves and faced bankruptcy through no fault of their own.

Ms. Horská said the government’s strict new measures – which the prime minister denies amount to a lockdown – would cost the economy up to CZK 2 billion a day.

Up to 80,000 people could lose their jobs by the end of the year, with many now remaining in employment only thanks to the government’s Antivirus subsidy scheme, she said.

UniCredit Bank’s chief economist Pavel Sobíšek said that the latest restrictions were reducing the capacity of the Czech economy by around one-quarter.

Mr. Sobíšek said the restrictions were not as tough as in the spring, when, in addition to the measures at that time, the movement of goods across borders slowed to a crawl.

He said the main impact on Czech GDP would stem from the situation in other markets, with almost half of total output in this country driven by foreign demand.

According to ING chief economist Jakub Seidler, the situation may be less negative than in spring, partly due to the fact that production is being maintained in major industrial companies, especially car manufacturers; they decided to shut down production voluntarily in the spring.

Mr. Seidler also told the Czech News Agency that the planned state budget deficit of CZK 500 billion should suffice for this year.

Prior to the second wave, a deficit of CZK 380 billion seemed likely, meaning there is still room for additional support programmes in the deficit that was previously approved, he said.