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German shadow over Czech economy

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The Frankfurt-based Commerzbank forecasts that the German economy will shrink by as much as 7% this year. If this happens, the Czech economy, closely tied to Germany, could fall, not by up to 2% as Czech National Bank governor Zdeněk Tůma suggested in The Financial Times recently, but by 3.5% this year.

“If the horror scenario suggested by Commerzbank comes true, then the Czech Republic has to count on the feeling the impact. The biggest threat for Germany, whose industry is experiencing the lowest demand in many years, rests in a mass increase in unemployment. If the number of unemployed people soars, the ability of businesses to invest will go down. The same can happen in the Czech Republic,” Sebastian Holtgrewe, spokesman for the German-Czech chamber of industry and commerce, DTIHK, told E15.

There is an unwritten proportion that every decline of 1% in Germany deprives the Czech Republic of 0.5% of GDP. Still a few months ago, the Czech National Bank thought that the national economy will grow by 2.9%. The official central bank forecast is now for a 0.3% decline.

“Anything is possible now, so it can happen that Commerzbank is true,” said analyst Axel Lindner of the Halle Institute for Economic Research (IWH), opposing the opinion that a 7% fall is an exaggerated estimate.

In practice, Commerzbank’s pessimistic forecast would mean that the German gross domestic product would drop to EUR 2.32 trillion this year from EUR 2.49 trillion last year. A 2% decline as suggested by Tůma would pull Czech GDP down from last year’s CZK 3.67 trillion to CZK 3.60 trillion, while a forced 3.5% reduction would cause a GDP fall to CZK 3.54 trillion.

“Germany, the world champion of exports, generates 35% of its GDP from exports. But demand for its goods has fallen dramatically on the key markets like the USA, France and Great Britain,” Holtgrewe said, commenting on the reasons.

When it comes to bad figures, Commerzbank is currently chased by the institutes DIW in Berlin and the RWI in Essen. The first sees a GDP decline of 4-5%, while the latter predicts a 4.3% drop. “There is not any improvement in sight, so that’s why the downward revisions. The weakening of German exports and of domestic investments is to blame. We have to wait until the global economy recovers. Exporters with their offers are well prepared for the recovery,” DIW expert Stephan Kooths told E15.

Translated with permission by the Prague Daily Monitor.

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