Download Comparing Czech Republic and Slovakia during

Comparing the Czech Republic
and Slovakia during the
recession:
The koruna vs. the euro
Miroslav Singer
Governor, Czech National Bank
Oxford, 4 November 2013
M.
Singer
Waiting
Sound
Recent
Inside
Czech
Economic
or
Republic:
money:
Developments
with
Outside
developments
the
Czech
Euro
Current
the
Euro
experience
Adoption:
inrecord
the
Situation
globally
Area
Czech
The
and
and
Economy,
Czech
in
Outlook
Europe:
case
Risks
the
and
CNB
Outlook
view
M.
–
-––
Czech
Czech
Present
Republic:
Republic:
Conditions,
Staying
Future
Monetary
challenges
Ahead
Policy
of
the
and
and
Curve
opportunities
Outlook
with
Regard
in
Czech
to
Republic
Monetary
Policy
M.
Singer:
Financial
Crisis:
Likely
Impacts
on
the
CR
and
Lessons
for
the
Supervisors
M.
M.
Singer
Singer
Singer
–
–Comparing
Czech
The
Význam
Czech
Czech
economy
Republic:
Německa
Czech
economy
Republic
and
pro
Can
and
development
českou
crisis
its
and
role
Slovakia
ekonomiku
in
low
in
Eurozone:
in
Europe
rates
Europe:
during
be
recession:
CNB
sustained?
Outlook
view
and
Koruna
Challenges
vs.
euro
M.Singer
M.
Singer:
Singer:
The
Present
Consumer
economic
Crisis:
Conditions,
and
protection
Impacts
financial
on
Monetary
crisis
the
in
CR
financial
from
and
the
Policy
Lessons
point
services:
and
of
for
view
the
Outlook
CNB
Supervisors
of
the
approach
Czech
for sector
CR
banks
M.
Singer
–Financial
Macroeconomic
developments,
monetary
policy
and
financial
11
111
1111111
1
Outline
• Czech and Slovak economies – stylised facts
• Performance of Czech and Slovak economies during
2005–2012
• Explanations of different performance and conclusions
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
2
Czech and Slovak economies:
stylised facts
• Czech and Slovak economies are similar (due to long period of
coexistence as single nation)
• After split of former Czechoslovakia in 1993 economies followed
different transformation strategies:
 Czech transformation advanced relatively quickly
 Slovak transformation was hindered by policies of PM Vladimír
Mečiar (while he was in power there were doubts about whether SK
would join EU at same time as other countries of region)
• Each country had its currency crisis (CZ in 1997, SK in 1999)
• Two governments of Mikuláš Dzurinda (1998–2006) implemented
reforms (decrease in tax burden, liberalisation of economy)
The starting economic level of SK was below that of CZ;
SK has been catching-up over the years
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
3
GDP per capita in PPS
(1995–2012)
Source:
Eurostat
The Slovak economy has been catching up with the
Czech economy over the entire period
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
4
GDP in CZ and SK
(1993–2012)
Source:
Eurostat
CZ grew faster than SK in (only) four years:
1999 (Slovak currency crisis), 2000, 2005 and 2009
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
5
Share of industry in total NACE activities
(1994–2012)
Source:
Eurostat
Industry has a somewhat lower weight in the
Slovak economy than in the Czech economy
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
6
Exports and turnover to GDP
(1993–2012)
Source:
Eurostat
The openness of both economies is rising steadily;
the Slovak economy is more open than the Czech
economy: 2012 turnover 188% (SK) vs. 150% (CZ)
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
7
Net exports/GDP
(1999–2012)
Source:
Eurostat
The ratio of net exports to GDP turned positive in
CZ in 2004 and in SK not until 2011; in 2012 the
two countries had comparable levels
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
8
Total investment to GDP ratio (1995–2011)
Source:
Eurostat
Over most of 1999–2011 the investment to GDP
ratio was similar in the two countries
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
9
Tax revenue/GDP
(2000–2011)
Source:
OECD
The tax revenue/GDP ratio has been stable in CZ
(at roughly the OECD average level) but has fallen
systematically in SK
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
10
Czech koruna/Slovak koruna (1993–2008)
Source:
Eurostat,
own comp.
The exchange rates of the successor currencies
have reflected the relative performance of the two
economies in the long run
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
11
Performance of Czech and Slovak
economies during 2005–2012
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
12
GDP in CZ and SK
(2005–2012)
Source:
Eurostat
In 2009 the Slovak economy contracted more
sharply than the Czech economy; otherwise it has
been growing a lot faster over the past six years
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
13
Manufacturing production (2005–2012)
(y-o-y changes in %; data adjusted for working days)
Source:
Eurostat
Manufacturing output shrank more significantly in
SK than in CZ in 2009; Ø growth during 2005–12:
3.4% CZ vs. 8.4% SK
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
14
Household consumption
(2005–2012)
Source: Eurostat
Consumption of Slovak households was rising much
faster than that of Czech households before the
crisis, but fell y-o-y in 2010–2012
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
15
Gross household saving rate
(2005–2012)
Source:
Eurostat
In 2005–2009 the saving rate of Slovak households
was well below that of Czech households; in 2010–
2011 it was virtually the same
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
16
Current account/GDP
(2005–2012)
Source:
Eurostat
Before the crisis the Slovak current account was
showing much higher deficits than the Czech one; in
2009–2011 the deficits were comparable; the Slovak
current account recorded its first surplus in 2012
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
17
Flows of FDI per capita in CZ and SK
(2002–2012)
Source:
CNB, NBS
Flows of FDI to SK declined after adoption of the euro
in 2009 (Ø 2002–08: EUR 539; 2009–12: EUR 280)
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
18
Net borrowing by government (2005–1012)
Source:
Eurostat
In 2009–2011 the Slovak government borrowed
significantly more than the Czech government
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
19
Primary balance
(2005–2012)
Source:
Eurostat
Consistent with this was a significantly more
negative Slovak primary balance in 2009–2011
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
20
Government gross debt
(2005–2012)
Source:
Eurostat
The two governments had almost equal debt levels
in 2008, but in 2012 Slovak government debt was
6 pp higher than Czech government debt
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
21
Unemployment
(2005–1012)
Source: Eurostat
Unemployment has long been higher in SK than in CZ;
since 2009 it has been going up faster in SK
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
22
Harmonised index of consumer prices
Source:
Eurostat
Inflation was low in 2009–2010 in both countries
(due to depressed demand pressures) and
increased afterwards
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
23
Summary of above evidence
• SK was growing faster than CZ before crisis; it contracted rather
more sharply in 2009, but then grew faster again
• SK’s large current account deficits before crisis indicate greater
overheating there than in CZ
• This overheating was driven mainly by significantly higher
household consumption growth than in CZ; consistent with this
was a sharper decline in saving rate of Slovak households than
Czech households
• FDI per capita in SK slowed after adoption of euro
• Net borrowing of Slovak government was significantly higher
than that of Czech government in 2009–2011; this led to high
primary deficits and faster growth in gross government debt than
in CZ
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
24
Explanations of different performance
and conclusions
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
25
Three questions
• Why did SK grow faster than CZ before crisis?
• Why did Slovak economy decline more than Czech
economy in 2009?
• Why did Slovak economy recover faster after 2009?
• When answering above questions we keep in mind:




Economic reforms adopted during 1998–2006
Adoption of euro by SK in 2009
Patterns of Slovak FDI before and after 2009
Expansionary fiscal policy in SK
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
26
Why did Slovakia grow faster than
the Czech Republic before the crisis?
• Economic reforms implemented before crisis seem to have
played most significant role; reforms have had long-term
effect stretching beyond crisis
• Robust current account imbalances before crisis (driven by
fast household consumption) indicated overheating of
Slovak economy (bigger than in CZ)
• FDI flows to SK before crisis fostered growth (may have
contributed to overheating)
• Slovak fiscal policy was neutral before crisis
Economic reforms were the most important factor
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
27
Why did the Slovak economy decline
more than the Czech economy in 2009?
• Slovak economy is more open than Czech economy
 higher vulnerability and sensitivity to external (trade) shocks (this is
consistent with sharper decline in Slovak manufacturing compared to
Czech manufacturing in 2009)
• SK adopted euro when financial crisis was in full swing
 sharper contraction of Slovak economy in 2009 may have been
partly due to impossibility of exchange rate adjustment
 central parity was probably set at too strong level (convergence
game); this effect is unlikely to exist any more
• Czech experience was different: depreciation of Czech koruna partially
offset loss of export income; Czech koruna worked as buffer
The financial crisis had a larger impact on the
Slovak economy due to its openness
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
28
Why did the Slovak economy recover
faster than the Czech economy after
2009?
• FDI inflow declined after 2009  FDI has no explanatory power
• Expansionary fiscal policy in SK:
 much higher government borrowing in SK compared to CZ
during 2010–2011
 more rapid growth of Slovak government debt
• Euro? Benefits of euro are quantified as being:
 in tenths of percentage point of GDP growth
 in very long run
The main driving force of the faster economic
recovery in SK than in CZ is related to expansionary
fiscal policy in SK
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
29
Implicit fiscal balance multiplier
(2009–2012)
GDP - annual percentage change
cumulative 2009-12
2009
2010
2011
2012
CR
-4,5
2,5
1,8
-1,0
-1,2
Slovakia
-4,9
4,4
3,0
1,8
4,3
CR minus Slovakia
-5,5
GDP gap as % of potential output
cumulative 2009-12
2009
2010
2011
2012
CR
-2,0
-1,3
-0,6
-2,3
-6,2
Slovakia
-3,0
-1,1
-0,6
-1,1
-5,8
CR minus Slovakia
-0,4
NET BORROWING:
Actual balance as % of GDP
2009
2010
2011
CR
-5,8
-4,8
-3,3
Slovakia
-8,0
-7,7
-5,1
CR minus Slovakia
cumulative 2009-12
2012
-4,4
-4,3
Cyclically adjusted balance as % of GDP
2009
2010
2011
2012
CR
-5,0
-4,3
-3,0
-3,5
Slovakia
-7,0
-7,3
-4,8
-4,0
CR minus Slovakia
-18,3
-25,1
6,8
Implicit fiscal balance multiplier
Multiplier I
GDP
0,81
Multiplier II
GDP gap
0,06
Implicit fiscal balance multiplier
-15,8
-23,1
7,3
Multiplier I
GDP
0,75
Multiplier II
GDP gap
0,05
Note:
Implicit fiscal balance multiplier I = δ in cumulative output growth/δ in cumulative fiscal balances
Implicit fiscal balance multiplier II = δ in cumulative output gaps/δ in cumulative fiscal balances
Source: Eurostat, European Commission; own computations
Implicit fiscal balance multiplier is the value of fiscal
multiplier capable to fully explain cumulative difference
of performance by different fiscal development
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
30
115
(3Q2008 = 100)
112,8
110
104,8 104,5
105
103,6 103,1
102,2
100,8 100,7
100
99,8
99,0 98,7 98,5 98,5
96,8 96,5 96,5 96,4
96,2
95
95,3 94,9
94,4 94,0
93,3 93,2 92,9
92,3
90
88,8 88,8
85
80
74,8
75
GR
SLO
CRO
CYP
I
PT
ESP
IRL
HUN
FIN
ROM
NL
LAT
DK
CZ
BUL
LIT
EST
EU-28
UK
LUX
B
F
AT
D
MAL
SK
S
70
PL
3Q2008 = 100; seasonally adjusted and adjusted data by working days
GDP in EU-28 in 2Q2013
Source: Eurostat, own comp.
In 2Q2013, GDP in SK was higher than before the
crisis, while GDP in CZ was lower
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
31
Conclusions
• Average growth of SK during 1993–2012 was 1.8 pp higher than
growth of CZ (and 1.4 pp higher during 2009–2012)
• SK benefited from reforms adopted before financial crisis
• SK was hit harder by financial crisis in 2009 due to greater openness
of Slovak economy compared to Czech economy (and also due to
impossibility to adjust through ER + too strong parity)
• Czech koruna mitigated impact of crisis on Czech economy
• Faster recovery of SK was driven by expansionary fiscal policy;
decline in FDI flows to SK after 2009 cannot explain recovery
• Relevance of koruna vs. euro is small in explaining patterns of
recovery after crisis
The Slovak economy has weathered the crisis
rather better than the Czech economy, but at the
cost of higher government debt
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
32
Thank you
Miroslav Singer
[email protected]
Tel: +420 224 412 000
Česká národní banka
Na Příkopě 28
115 03 Praha 1
M. Singer – Comparing Czech Republic and Slovakia during recession: Koruna vs. euro
33