Good day since the broadcast of the Czech Banking Association's macroeconomic forecast for the first quarter, which we presented live a few minutes ago, and we also offered you an interview with one of the panellists, Jan Vejmělek. But now we have Pavel Sobíšek, Chief Economist of UniCredit Bank, in front of our camera of the Czech Banking Association. Have a nice day.
Hello.
Your colleague and I have been talking more about global issues and the impact on the Czech economy as you as panelists perceive it. Let's look at the things that are affecting the economy more from the inside according to how you have constructed the forecast. What do you think will be the role of the Czech National Bank?
Obviously, the Czech National Bank will influence the economy with its monetary policy, but we assume that this influence will not be very strong given that the interest rate, as we assume it, will remain unchanged. This means that the Czech National Bank will use the level of this rate to control inflation so to speak, so that it does not break the chain and remains within the limits of where we want it to be. However, we cannot assume that the Czech National Bank will lower the interest rate significantly, which would, for example, increase demand for credit, which could then kick-start something in the economy that we have not seen so far. We believe that the housing market is already quite inflated at the moment and that a further boost to its growth from a fall in interest rates would not be very desirable.
So who is going to pull the economy along as you see it?
It should be primarily consumer spending, which has ample scope for that. That room is given by the fact that real wages will rise, and by nominal wage growth and relatively low inflation. In fact, government policies also contribute to their disposable income, and at the same time households have a high savings rate, according to the latest figure over eighteen per cent, so that every tenth of a per cent by which this savings rate falls will actually have a positive impact on household consumption. Clearly, private consumption will be what will drag the economy down the most, both this year and next.
What are we most worried about? Let's put aside the global threats and look more at the domestic market.
Personally, I would worry about too loose fiscal policy. For this year, the way the state budget is set up, still only proposed, not approved, it means only a small increase in the deficit compared to last year in terms of cash, but if we translate that into an accrual basis, that is, how the spending will actually affect the economy and in which year, we are getting a deficit increase to almost three per cent of GDP. And that is, firstly, a limit in terms of the functioning of the European Union and, secondly, it is quite a big jump from last year. So I personally would be worried about the deficit growing even more next year.
You say me personally. I watched the broadcast, and I watched your statements from the individual Members who presented it. How unanimous was actually the unity of opinion, the discussion, in terms of the representatives of the various banks.
I would say that there was a lot of agreement on the overall tenor of the forecast, but obviously not every topic that you asked about was discussed in full detail. So I personally said that word not because I think my colleagues would have a contrary view or a different view, but rather because it was simply not discussed in detail, unlike some other topics, such as private consumption and its growth rate.
I also asked my colleague Vejmělek what we could be afraid of, what could be the global threat? What could be the internal threat? What do we see as a stable thing at the moment, but it could be that it could disrupt our plans for that positive forecast and we could be saying in the next quarter, well, we didn't count on that.
Yes, so now you're asking exactly what no macroeconomist can answer because it's about black swans. Something that just doesn't even make it into the forecast somewhere on the side, let's say. And yet we know that these situations can occur and can be quite a fundamental change for the economy. But what exactly it is, I really don't know. If we had a sense of where that direction might go, we would probably reflect it in the forecast in some way. Or at least we would have said, this is the risk of the forecast. Since we haven't done that, we don't see such a fundamental risk from the domestic scene. Indeed, we do not see it from the international one either, although we suspect that there are probably more reasons for such a change. But they are simply black swans.
So I will go back to the beginning. In my question, when we talked about the Czech National Bank's actions. The exchange rate of the koruna can be linked to them and there can also logically be an export link. What does that look like? Because neighbouring European countries have their own problems and this could well be the black swan.
I personally do not believe that the black swan should be the exchange rate of the koruna. The koruna has been very stable for a long time. It is actually more stable, less volatile against the euro and than our neighbouring currencies, the Hungarian forint and the Polish zloty. And we are used to this. Yes, the koruna could strengthen by a percentage point or two, which would put exporters at a disadvantage in the margin. But if it actually had an impact on the economy? Firstly, exporters are hedgers, some of them hedge for several years in advance. This means that the exchange rate change would not affect them immediately, but only after a long delay. And secondly, given the various costs, the exchange rate is just one cost item that each company can work with in some way. And unless the exchange rate really changes overnight by a few percentage points, exporters will cope.
These were other segments of the macro forecast with Pavel Sobisek, chief economist at UniCredit Bank. Thanks very much for those and thanks very much for working with us on that macro forecast.
I thank you for having me.
And if you're interested in the data, check out the Czech Banking Association's website.