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Transcript of an interview with economist Adam Ruschka
Good afternoon. In the second part of this interview, which we’re bringing you following the live broadcast of the macroeconomic forecast, we’ll introduce another panelist. Following Petr Dufek, Adam Ruschka, an economist at J&T Bank, has taken a seat with us. Good afternoon.
Good afternoon to you, too.
How much consensus did you panelists reach when presenting or compiling the August macroeconomic forecast?
It depends on what you’re asking about. For example, we were very much in agreement on this year’s inflation outlook—the spread was very narrow, around 2%—but when it came to next year’s inflation outlook, we weren’t quite as unified. This simply stems from the fact that we each assess inflationary pressures—their persistence, their intensity, and so on—in slightly different ways. And there are still quite a few significant unknowns, whether it’s the tensions in the Strait of Hormuz, the extent of fiscal policy easing, how much wages will grow, and so on. So it really depends on the specific issue.
Petr Dufek, in fact—we’ve talked a lot with him about inflation—was quite blunt, shall we say, about the future of inflation. What about you? Are you an optimist? If, that is, an economist can even be an optimist.
I think an economist can be an optimist, and I’m an optimist by nature, so my optimism is reflected in the fact that I don’t think any catastrophe is in store for us. But I think I’m a realist in the sense that inflation won’t just disappear on its own. The factors keeping current inflation high—whether it’s core inflation, real estate prices, or service prices—are present in the economy and seem to be fairly deeply entrenched. And unless something fundamental changes, there’s simply no reason for them to disappear from the economy. At the same time, the factors that are currently keeping inflation lower—such as food prices—are more likely to fade away over time, simply because fertilizer prices are high and energy prices are high. This year’s harvest was relatively modest, so to speak; from this perspective, I’d expect inflation to continue rising on its own.
We often discuss in our programs—not only in the macroeconomic forecast but also in this one—that Czechs save a lot. And we’ve asked—or rather, you panelists have asked—in a poll: when will this change, when will Czechs stop saving? How does it look from your perspective, and how realistic is that survey, really?
Well, the survey actually showed that, within the timeframe we’re looking at, this high propensity to save—or rather, this willingness to save—isn’t going to fade away. And from my perspective, there’s probably no real reason for it to. What happened in terms of income—namely, the abolition of the “super-gross” wage—was a structural change, so to speak, that simply persists in the economy. Added to this is the need for, let’s say, caution, because the world after 2020 appears to be considerably more uncertain, which a rational household will certainly reflect in a greater inclination to save. That means, from my perspective, I certainly wouldn’t expect a rapid drop—specifically, in the savings rate—back down to around 12–13%, where it had simply been for a long time. Last but not least, there is a simple, textbook macroeconomic principle: if households or consumers see that the government is taking on a lot of debt, they expect that sooner or later these debts will have to be paid off and they’ll start saving to offset what the government has borrowed, because sooner or later the government will have to take it from them. I’m not saying this is necessarily what’s happening right now in the Czech economy, but undoubtedly, a certain increased wariness about how the government manages our money can lead—can lead—to households being more cautious.
How does this fit in with another trend you’ve highlighted, namely the rise in consumer loans at banks? That increase is over 7.5%.
I think this, in turn, reflects the other side of the economy—and, of course, when it comes to those loans, it’s also due to the fact that if we look at the economy cross-sectionally, say through income groups, it’s clear that savings are dominated primarily by those with higher incomes. Conversely, lower-income earners likely save almost nothing. And from this perspective, I think this also partially influences the dynamics of these loans, where we see that overall demand in the economy is strong; households have money to spend, have room in their budgets, and simply accept high prices, whether for real estate or consumer goods. This means that while households are saving, they also feel relatively well-off in terms of income and aren’t afraid to spend. In other words, the high volume of those loans—or the strong growth in those loans—simply supports the view that the economy is doing well, especially in terms of consumption, so to speak.
The labor market is something that households ultimately react to, whether in terms of savings, loans, or spending. The market has actually begun to, let’s say, change for the worse, although it’s always a matter of perspective as to how economists view it. So how does the macroeconomic forecast view the labor market in the short term?
Well, at present—looking at the unemployment rate, as published by the Ministry of Labor and Social Affairs—we expect more or less stability, given those figures, that is, we’re at a level roughly equivalent to the long-term average. From the perspective of these statistics, the unemployment rate is more or less average for the economy and should remain more or less stable this year and next. According to the Labor Force Sample Survey, as published by the Czech Statistical Office, the unemployment rate is slightly lower, and this year that is primarily due to methodological factors. What is undoubtedly true, however, is that in the Czech economy, relative to, say, the rest of Europe, unemployment is simply very low, and generally speaking, the “work ethic” here—as reflected by these metrics—is very high. The fact that the unemployment rate—or the proportion of unemployed people—has begun to rise in the last few months, or let’s say over the past year or year and a half, certainly does not indicate a deterioration in the labor market. It’s more of a, let’s say, expected return to long-term averages—or, if you will, equilibrium levels. It’s not—it’s not about that, and no one expects that in six months, a year, or a year and a half, there will simply be dozens of unemployed people standing at the doors of employment offices demanding jobs.
I have one last point. As far as I’m concerned, that macroeconomic forecast is actually full of contradictions. We have a positive macroeconomic forecast, yet households are saving. We have a slightly unstable labor market, but households remain calm in this regard, and so on and so forth. Just how complicated is it these days to make a macroeconomic forecast for the Czech economy?
Well, I think it’s extremely complicated—probably just as it always has been. Simply put, predicting the future is an uncertain business, precisely because it concerns the future. But I believe that certain fundamental principles simply hold true. I think there’s no longer any doubt today that certain social—or, if you will, economic—laws are just as valid as the laws of physics. And from this perspective, there are certainly points in that macroeconomic forecast—even though I accept the argument that, at first glance, it may appear that the forecast is contradictory or inconsistent in some respects— there are undoubtedly key points in it where there’s no doubt and no dispute. And this was evident, for example, in what I mentioned at the beginning—that there was actually quite strong consensus on certain issues. Simply put, inflation will be 2.0% this year and higher next year. According to that consensus, rates certainly won’t go down this year; on the contrary, they may go up this year or next. This isn’t a specific answer—it doesn’t say that inflation will be a certain level on February 23 at 1:00 p.m.—but I think it’s valuable information.
Says Adam Ruschka, an economist at J&T Bank. Thank you very much.
Thank you, too.
I look forward to it, and I look forward to seeing you next time as well.