We are late, I fear we will lose many jobs, warns the CNB adviser

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The Czech National Bank has maintained a stable exchange rate since Governor Aleš Michl and three other bank board members took office in July, and interest rates remain at seven percent. CNB adviser Jan Frait says, however, that there could be a situation where rates rise even more.

When will the price growth rate end? I expect that in the second half of next year, inflation will start easing and reach single digits. The big unknown is how the major central banks will react to the situation. When I look at the Fed and the ECB, I see clear signs that they will back off and monetary policy tightening will not be as strong.

This could put us in a difficult situation in the Czech Republic, because if global conditions are not tense enough, inflationary pressures could persist. We will be faced with the dilemma of whether we should tighten our monetary policy to dampen our relatively strong inflationary pressures.

There is no reason to assume that such high inflation will stay with us for very long. It’s not normal inflation, it’s more a combination of a lot of weird shocks that have entered our economy, which is obviously overheated.

The situation is like a seesaw. With the arrival of new economic numbers from the US, one week everyone is betting that monetary policy will tighten, then the opposite is true. Unfortunately, I fear central banks will back off a bit. I have experienced this several times in this century. As soon as they start to notice malfunctions, they often become very cautious. I am not at all surprised by the large indebtedness of the private sector and governments. I do not exclude at all that they will have to proceed with the tightening.

The world after the global financial crisis and covid is a debt pyramid. And while people tend to focus on national debt, the private sector in the West and Asia is also often heavily indebted. The Czech Republic is among the countries that are not significantly indebted. So we have room to define our policies and not fall into that trap.

There is no easy way out of that trap. Or miraculously, the economy starts growing rapidly, and then this rapid nominal GDP growth cuts our debts. A much more painful way, and one that doesn’t work very well, is to try to cut those debts yourself. No one is really ready for this yet. Most people hope that some miracle will reduce the debt by itself.

We have an exceptional situation that we haven’t experienced for a long time. We have risks that mainly come from abroad. It is necessary not to paint the situation rosy. There is no sound macroeconomic situation anywhere, not even in the Czech Republic. The situation is affected by the war going on nearby. Furthermore, the price of energy is used as a weapon.

From a longer-term perspective, I see a great risk of continued deindustrialisation of Europe. Obviously, we have a significant technological lag. In Europe, we are in real danger of losing a large part of the production we have here, and also many jobs. I’ve been paid for pessimism for years, and it stays with me.

I feel that the political representation in Europe has already decided that in addition to using Asian-made electronics in Europe, we will also use Asian-made electric vehicles, and this can have a significant impact on our economy.