Transcript of an interview with economist Petr Gapek
The setting of today's interview makes it clear that it is that time again when the Czech Banking Association presented its macro forecast and we are recording just after the live broadcast with its panelists and those who presented it live. The first is Petr Gapko, chief economist at Moneta Bank. Good day.
Hello.
It's rare for me to use foreign geographical names so often when presenting domestic macro forecasting. The Strait of Hormuz, how much of a problem and how much of a driver was that actually for our macro forecast?
It was a driver, but it was not a completely fatal driver, let's say. If we look at how important the Strait of Hormuz is for the world economy, and therefore also for the Czech economy, we can actually see what has been happening in recent months and in recent weeks. In short, a third of the world's oil reserves or global oil production flows through Hormuz, and therefore anything that happens in Hormuz has a clear impact on the price of oil. That has indeed happened. Added to that is geopolitical uncertainty, together with the impact of conflicts, and what we are seeing in our country is that these things are impacting on us by limiting economic growth and increasing prices, that is, by increasing inflation.
How much?
In our new forecast, we have cut economic growth by sixty points for this year and twenty points for next year. That is, we now assume 2% growth this year and 2.4% next year. As for inflation, we saw an increase of a few dozen basis points there. Specifically, we expect inflation to stay around 2.5% this year, with the possibility of rising to 3% by the end of the year. Inflation could then be a drop higher next year.
We are in the middle of the year with the macro forecast. So, again, I will stick with Hormuz and inflation. How much is it going to change, and this was actually one of the panelists' questions, if and when Hormuz opens, how much of an impact will it have on just that domestic inflation?
I think it's important to mention here what was or what was the main assumption of that whole forecast that the panelists agreed on, give or take. And that basic scenario was that Hormuz would open in the second quarter of this year, that is, sometime in June, let's say the end of June. This is inexorably approaching. If it were to happen later, we would be looking at even slightly lower growth, and even slightly higher inflation. These are, in short, effects that must be taken into account. It is, in fact, clearly implied by the price of oil. The price of oil is being written into our inflation gradually and slowly. What we have seen in recent months was the first effect where the price of oil was immediately reflected in fuel prices. However, we also have to take into account that fuel prices actually enter into the price of any goods we buy in the shops, because those goods have to get into the shops somehow. So we are going to see, and we are already starting to see, an increase in the price of goods across the board. This is, in short, a secondary effect that we have to take into account, and that is why the Czech Banking Association's panel of macroeconomists is counting on inflation jumping up even more.
You said that the panellists agreed on that, what did they disagree on?
Probably the biggest disagreement was on how interest rates will evolve. Here we were divided into, let's say, two halves, where the half that was a little bit bigger won. The bigger half. The bigger half, exactly. Unfortunately, it's not like a house where the couple divide into ideal halves. And so the slightly, slightly larger half does expect interest rates to be stable both this year and next, that is, the two-week repo rate at 3.5%. However, a smaller half of the panellists also expected rates to rise, perhaps as high as 4%.
Is that forecast positive or rather negative?
We have so far mainly mentioned the negative that we see in the forecast, but we should remain positive because we still see or expect 2% growth this year, 2.4% next year. And even if we get a little bit lower with growth, growth above 2% is still beautiful. It still means that our economy is expanding, the economy is doing well. Moreover, this growth is accompanied by real wage growth. This means that people should be better off too, they should consume more, they should be able to afford more. So in the end, the whole picture of the forecast is positive. What is negative is that we are shifting growth down a little bit, thanks to the factors we mentioned.
Good news. Thanks for those, thanks for the interview, thanks for presenting the macro forecast, and I wish you a good day and be sure to stay tuned because Petr Gapko was not our last guest. We'll be joined in the next interview by Helena Horská, chief economist at Raiffeisenbank.