Just don’t be fools. The Czech Republic is experiencing a recession, not a crisis. I suggest that from now on we don’t read articles with headlines containing the word crisis in connection with the Czech economy.

The conditions we have now – as confirmed by statisticians – are one dimension better than what was in the former Czechoslovakia during the economic crisis of the 1930s.

The way there…
I do not know how much the situation is going to worsen or improve in a year or two. I work with various forecasts. I am not underestimating the crisis scenario. But I say to myself: We will be our own worst enemy if we now focus on our scepticism, distrust, fear. Because we need exactly the opposite – to restore confidence.

Here I present figures to compare March 1933 and March 2009. I took the historical data mainly from the excellent book “Vzestupy a propady československé koruny” (The rises and falls of the Czechoslovak crown) by national economist František Vencovský. Present-time data are available on the Czech Statistical Office’s website.

Let’s look back first: We are in Czechoslovakia, it’s March 1933, and we are exactly at the bottom of the deepest global economic crisis ever – that means the bottom of the business cycle in the USA.

The value of Czechoslovak exports fell by 64.4% in 1933 compared with 1929. Industrial output dropped by 39.1%. GDP in real prices decreased by 21.2% in the said period. Moreover, the number of unemployed increased from 42,000 in 1929 to 738,000 in 1933 – that is, by 1,657% ! The domestic price level decreased by an average 5% every year in the monitored period. By contrast, government debt increased to 83% of GDP.

The crisis hit all financial institutions. Share capital in banks dropped by almost a third. Eleven banks were rescued. Households were less thrifty, so retail deposits decreased from 13.1 billion to 10.7 billion crowns.

And now a case study from Škoda Auto in 1933: Workers manufactured 412 cars with engine capacity of 995 cubic centimetres, and 2 cars with engine cubic capacity of 1,200 – but they dismantled 433 cars with even a bigger cubic capacity of 1,600. So the total output reached minus 19 cars!

… and back
So this was a short trip to the past, and now let’s go back to the present time. We are in the Czech Republic, it’s March 2009. Our economy is in a recession. The last peak of the business cycle in the USA was in December 2007. The bottom is probably still ahead of us.

The value of Czech exports has fallen by 9% since December 2007. Industrial output has decreased by 14.6%. GDP in real prices dipped by less than 1%. The number of unemployed has increased from 355,000 in December 2007 to 429,000 – that is, by a fifth. The domestic price level rises by 1.3% a year on average. The government debt currently accounts for less than a third of GDP (but may be as high as 40% of GDP in three years).

None of the five largest domestic banks needs any aid from the state budget. Confidence in the crown persists, and household deposits in banks reached CZK 1.135 trillion at the end of 2007. Now the figure is almost CZK 200 billion higher.

And again comes a case study from Škoda Auto: Sales of Škoda cars rose by 7% to a record 674,500 units last year. However, Škoda board chairman Reinhard Jung said at the recent Geneva motor show that he expected sales to go down this year…

A solid uncertainty
Yes, we have to add the word “yet” to all those data and figures. After all, I do not hide uncertainty in this article. But I still think the word “crisis” is unsuitable.

Recession is the downward journey in the business cycle. It’s like in everyday life: You go up and down. We should keep a cool head and common sense. I am convinced that our managers are smart enough to not let their brains be flooded by the “crisis”, but that they take advantage of the recession to reinforce their companies’ market position. And last but not least, maintain adequate employment in their firms.

The success achieved by companies like Škoda Auto, Škoda Holding and ČEZ is an excellent example. And also smaller businesses like Tescoma, Linet and Unicorn are doing well thanks to the previous expansion. There could simply continue a sound demand for our products, something like “a good quality at a reasonable price”.

It will just not go as smoothly as we though before. But the main thing is that we cannot be mourning and fooled by the recession. That would be a way into a real crisis.

The author is an analyst at Raiffeisenbank.


Translated with permission by the Prague Daily Monitor.