Download International Insolvency Law Organisational matters

Dr Marek Porzycki
Chair for Economic Policy
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Following a 6-year period of high economic
growth (averaging 5% of GDP), inflation has
risen above 4% and is predicted to remain
high. Growth of asset prices (real estate,
shares in companies) was consistently above
inflation. During last 2 years real estate prices
grew in average by 25%.
You are a member of the body deciding on
the monetary policy (e.g. Monetary Policy
Council). What steps would you advise to your
colleagues?
A sudden spike in global oil prices caused
inflation to rise to 4% in the last quarter (Q1).
Further rise to 5% is expected in the next two
quarters (Q2 and Q3).
The economy remained stagnant with
growth rate (annualised) at 0,7% of GDP in Q1,
predicted to fall to 0,1-0,3% in Q2 and Q3.
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Economic growth slowed down from 3% of
GDP to 1,8% and is expected to fall further
because of weak results in neighbouring
economies depressing export profits.
Inflation rate of 4,5% is still above the target
of 2,5% but it is expected to fall.
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A credit boom ended with a sudden fall in
real estate prices. Risk on loans granted by
banks increased significantly, as they were
not anymore covered by the value of real
estate used as collateral. Resulting doubts
over long-term solvency of banks caused
interbank lending to freeze.
Inflation level was 4% and growing before the
fall of real estate prices. Since the credit
crunch inflation rapidly fell to below 2%.
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2 years after an economic crisis and recession
the economy has started a very slow recovery.
Economy growth in Q1 was 0,4%, in Q2 1,2%,
in Q3 0,8%. According to analysts, recession
is likely in Q4 and the following year. Inflation
is persistently around 0%, with some periods
of deflation (Q1 -0,1%; Q2 0,6%; Q3 0,2%).
Central bank deposit rate is at 0,10%, lending
rate at 0,50%.
After an economic slowdown and subsequent
recesssion the central bank engaged in
several rounds of quantitative easing,
significantly expanding the monetary base. In
parallel, the government has increased
spending, intending to boost the economy
with a stimulus package. Most recently, the
economic growth increased to 2,5% and
inflation started to grow, reaching 2%. Banks
reported increased lending. Prices on real
estate market started to grow dynamically, in
average by 7% in the last two quarters.