We are reaching a stage where the government is trying to curb the spread of the pandemic “at all costs” even with measures that clearly do not help much. These include the newly adopted ban on going out at night. According to Minister Havlíček, the government was inspired by France and Spain, where at the turn of April and May, night wandering on the beaches could be a problem. There is really no such danger in the Czech Republic at the turn of October and November. Even according to one of the largest studies examining the effectiveness of anti-pandemic measures in a sample of 41 countries (https://bit.ly/31J5iqw) “Leaving bans” on average do not yet help. Restrictions on the right to assemble (currently in pairs in the Czech Republic), the closure of schools and the closure of a large part of shops and other services remain key in the fight against the pandemic.
The Czechia already has a large part of these measures in place. The problem is that people do not follow some of them as closely as they do in the spring. So what is left in the arsenal? Probably a more general restriction on all service provision, fewer exemptions and tougher enforcement. All this will eventually return the economy to recession again at the end of the year, and as a result the decline will be higher this year and the recovery next year slower.
However, not all the news of recent weeks is so pessimistic in the end. The German business sentiment index yesterday did not send as threatening a signal as the markets feared. After five months of growth, it fell again in October, but very cosmetically – from 93.2 to 92.7 points. In addition, the worse mood is purely the result of expectations, while the assessment of the current situation continues to improve on average. So German companies are starting to be afraid of the second wave, but in October their business has not been very significant. In addition, the mood in the key industry continued to improve and reached its highest levels since June 2019. This is surprisingly good news. Not only is German industry coping better with the second wave than with the first (subcontracting and production restrictions are not taking place yet), but the mood is even better than before the pandemic.
A slight flaw in the beauty is the fact that production in Germany still remains at extremely low levels. One reason for optimism is the simple fact that many industries, including automakers, have already produced so little that further declines are difficult to imagine. It is also a question of what November will bring? The second wave continues to spread across Europe, including Germany, and may hit German industry in full delay.
*** MARKETS ***
CZK and bonds
Sales on the stock markets and tougher measures in the fight against coronavirus keep the Czech koruna on the defensive. The quite favorable result of the German Ifo index did not help either. The koruna thus returned to close to 27.30 EUR / CZK.
Foreign forex
Despite the stock sales, the US dollar has remained rather stable at around 1.18 EUR / USD in recent sessions. We see the possibility of dollar gains as more likely for the next week. At the current relatively weaker levels, the uncertainty associated with the US election and, at the same time, the fear of a second wave of pandemics in the US and Europe may help.
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