M. Singer – Czech Republic: Future challenges and opportunities 1 M. Singer – Present Conditions, Monetary Policy and Outlook in Czech Republic 1 M. Singer - Czech Republic: Staying Ahead of the Curve with Regard to Monetary Policy 1 M. Singer: The economic and financial crisis from the point of view of the Czech banks 1 M. Singer: Financial Crisis: Impacts on the CR and Lessons for the Supervisors 1 M. Singer: Financial Crisis: Likely Impacts on the CR and Lessons for the Supervisors M. Singer: Present Conditions, Monetary Policy and Outlook for CR 1 M. Singer: Consumer protection in financial services: CNB approach 1 The Czech Republic: The Czech Republic: Future challenges and possible Future challenges and possible risks risks OECD, Seminar “20 Years After” Paris, 20 November 2009 Miroslav Singer Miroslav Singer Vice-Governor, Czech National Bank Vice-Governor, Czech National Bank
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M. Singer – Czech Republic: Future challenges and opportunities 1 M. Singer – Present Conditions, Monetary Policy and Outlook in Czech Republic 1 M. Singer.
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M. Singer – Czech Republic: Future challenges and opportunities 1M. Singer – Present Conditions, Monetary Policy and Outlook in Czech Republic 1M. Singer - Czech Republic: Staying Ahead of the Curve with Regard to Monetary Policy 1M. Singer: The economic and financial crisis from the point of view of the Czech banks 1M. Singer: Financial Crisis: Impacts on the CR and Lessons for the Supervisors 1M. Singer: Financial Crisis: Likely Impacts on the CR and Lessons for the SupervisorsM. Singer: Present Conditions, Monetary Policy and Outlook for CR 1M. Singer: Consumer protection in financial services: CNB approach 1
The Czech Republic: The Czech Republic: Future challenges and Future challenges and
possible risks possible risks
OECD, Seminar “20 Years After”Paris, 20 November 2009
Miroslav SingerMiroslav Singer Vice-Governor, Czech National BankVice-Governor, Czech National Bank
M. Singer – Czech Republic: Future challenges and opportunities 2
• Economic performance of Czech economy during crisis
• CNB forecast • Challenges and possible risks
ContentsContents
M. Singer – Czech Republic: Future challenges and opportunities 3
GDP growth: q-o-qGDP growth: q-o-q
Technically, the recession stopped in 2009 Q2
Source: CZSO
0,9
1,61,2
0,50,1
0,71,0
0,00,50,5
0,1
1,11,21,2
0,3
1,3
0,7
1,41,51,2
1,81,71,61,81,71,9
1,61,4
2,5
0,2
1,51,0
0,1
1,2
0,5
-1,3
-4,8
0,1
-6
-5
-4
-3
-2
-1
0
1
2
3
00/I III 01/I III 02/I III 03/I III 04/I III 05/I III 06/I III 07/I III 08/I III 09/I III
q-o-
q ch
ange
in %
M. Singer – Czech Republic: Future challenges and opportunities 4
Cumulative GDP q-o-q growth:Cumulative GDP q-o-q growth: 3Q2008-2Q2009 (not seasonally adjusted) 3Q2008-2Q2009 (not seasonally adjusted)
The cumulative q-o-q GDP decline in the Czech Republic was comparable with the EU-27 average
At the monetary policy horizon, the headline inflation forecast is slightly above the inflation target
-2
0
2
4
6
8
IV/07 I/08 II III IV I/09 II III IV I/10 II III IV I/11 II
90% 70% 50% 30% confidence interval
Inf lation target
Monetary policy
horizon
M. Singer – Czech Republic: Future challenges and opportunities 18
Main uncertainties in short runMain uncertainties in short run
• What will course and intensity of recovery look like internationally and in Czech Republic’s major trading partners? W-shaped?
• How strong are disinflation pressures (external inflation, nominal wages, domestic demand)?
• How will Czech public finances develop in 2010 and 2011? • How will koruna exchange rate develop? • How effective is monetary policy transmission mechanism?
Huge uncertainty still surrounds economic developments and monetary policy-making going forward
M. Singer – Czech Republic: Future challenges and opportunities 19
Challenges and possible risksChallenges and possible risks
• Domestic: Fiscal policy • External:
Protracted and painful recovery in Europe Hasty supervision and regulation changes
M. Singer – Czech Republic: Future challenges and opportunities 20
• High share of mandatory or quasi-mandatory expenditures in total expenditures (above 70%)
• No pension reform or healthcare reform (ageing!)• Lack of transparency in budgetary process • Atomisation of public budgets • Lack of audit of state funds
Despite significant steps approved recently by parliament, the fiscal area represents the most serious macroeconomic risk going forward (persisting deficits even in good times and rapid growth in debt)
M. Singer – Czech Republic: Future challenges and opportunities 23
GDP GDP (2000 = 100)(2000 = 100)
The longer term danger for Europe is still its too sluggish growth
Source: Eurostat
95
100
105
110
115
120
125
130
135
140
145
2000
q01
2000
q03
2001
q01
2001
q03
2002
q01
2002
q03
2003
q01
2003
q03
2004
q01
2004
q03
2005
q01
2005
q03
2006
q01
2006
q03
2007
q01
2007
q03
2008
q01
2008
q03
2009
q01
2009
q03
200
0 =
100
CR EU-27 USA
M. Singer – Czech Republic: Future challenges and opportunities 24
Current problems in financial market Current problems in financial market supervisionsupervision
• Planned European Systemic Risk Board at ECB and European financial supervision system may blur division of labour among existing supervisory authorities
• Instead of precisely defining and identifying causes of crisis, illusion being created that more supranational supervision and regulation is guarantee against future repetition of crisis
• Risk: if supervision is distanced from national level, current unsatisfactory state of affairs will deteriorate even further
• Other topical issues put on back burner (cost-sharing)• Overregulation of the sector may further decrease the EU‘s
growth potential.The past problems of Czech banks impacted “fairly” on Czech taxpayers, but in the future external problems might impact on them through no fault of their own!
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Five violated principles – what the Five violated principles – what the current plans neglect/worsencurrent plans neglect/worsen
1. Uncertainty is fundamental (diversifying supervisory/regulatory policies reduces risks arising from fundamental uncertainty)
2. Positive motivation (eliminated value of banking licences for shareholders and profitability of traditional areas of banking)
4. Communication of costs (costs often not even discussed at expert level, never mind communicated by politicians to voters)
5. Manageable number of institutions (any unification, or even just improvement of coordination, of supervisory/regulatory institutions at European level requires progress with integration of 80 or so institutions at national level)
M. Singer – Czech Republic: Future challenges and opportunities 26
ConclusionsConclusions• Risk of long-term fiscal “inaction” (structural deficit)
currently being compounded by economic decline (cyclical deficit) and potentially by political stalemate in future
• Due to high export intensity of the Czech economy a sluggish recovery in Europe will impose an impediment on domestic recovery
• Hasty changes in financial market regulation and supervision may present future risks to financial stability of Czech economy (any mistakes in globalised supervision could be far-reaching and could even trigger new crisis) or to the growth in Europe.
While the fiscal risk is domestic (and therefore influenceable), the risks of pan-European supervision are external (and therefore hard to influence)
M. Singer – Czech Republic: Future challenges and opportunities 27