Prague - Even though political and economic leaders have been assuring people recently that Czech banks are in a good shape, for the first time they admitted Thursday that the financial crisis could hit the Czech Republic harder than expected.
"We have been counting on a small slowdown of the economy but now we know that the slowdown will be larger. The exceptionally good times are over and we are about to enter a normal period that will bring usual problems," said Finance Minister Miroslav Kalousek.
After meeting the Prime Minister, National Bank governor Zdeněk Tůma assured that there was no crisis threatening the Czech banking system. Neither politicians, nor Tůma mentioned how large they expect the economic slowdown to be.
The crisis and the budget
On Tuesday, the government submitted a budget proposal to the parliament that was counting on an economic growth of 4.8 percent next year. That is two points higher than the expected growth for 2008.
The government submitted the budget even though the National Bank expected only 3.6 percent growth in July and Finance Minister Kalousek admitted Thursday he counts on only a four percent growth.
The opposition head of the budget committee Bohuslav Sobotka (ČSSD) criticized the government for going over the budget, pointing out that the growth might as well reach only three percent. "It can make the budget decrease by CZK 20 billion," he warned the government.
Two percent down
There are still some optimists among economic experts who believe that the economic growth will be only slightly lower than four percent next year. "The car manufacturer in Nošovice will start its production which might increase the growth by 0.8 percent," says Aleš Michl from Raiffeissen Bank.
Experts from the Patria financial company are more skeptical. "Originally, we expected a growth of 3.5 percent but that was before we counted in the effects of the financial crisis. That is why we now lowered our expectation to 3 percent," David Marek explains.
East slows down
Foreign experts share his expectations. Hungarian economist László Csaba predicted in the Austrian newspaper Der Standard that the fast growing economies of East European countries will slow down by two percent. The reason is that it will be growingly difficult for them to get export loans in Western Europe.
Both optimists and skeptics agree on the form the financial crisis is about to affect the Czech economy. Aleš Michl believes that the decrease will not be that high because companies have been already preparing for tougher times since the end of the year. "Companies count on increasing costs and cutting investments."
This approach is exactly what Western experts consider the main impact of the crisis. "When the companies adapt to stormy times, they start watching their costs and are more cautious about investing," wrote Holger Steltzner in Frankfurter Allgemeine Zeitung.
Supporting role of the government
Finance Minister Kalousek agrees that it will become much more difficult for the companies to get loans. Their troubles should be compensated by lower taxes that should apply in 2009.
"Last week we discussed the possibility of lowering interest rates. Our prognosis counts with the decreasing trajectory of the interest rates," Tůma indicated the direction of the bank council decisions.