Coronavirus: Czech cabinet, central bank take further measures to bolster economy

17-03-2020

The Czech government and central bank have announced further measures to offset the impact of the coronavirus on large firms, small businesses and households. While economic growth is certain to drop steeply in the near term, the authorities and experts note this country is better prepared than most to weather the storm.

Photo: Matěj Skalický / Czech RadioPhoto: Matěj Skalický / Czech Radio The government on Monday earmarked another CZK 1 billion in interest-free loans for entrepreneurs affected by the spread of the novel coronavirus through its COVID Loans programme, adopted a week ago, and extended eligibility to sole traders as well.

At the same time, the Czech National Bank announced following an extraordinary monetary policy meeting it had cut key interest rates by 50 basis points to 1.75 percent to mitigate the economic impact of the coronavirus.

Before the coronavirus outbreak in Europe, the Czech economy was expected to grow around 2 percent this year. In a news conference on Monday, central bank governor Jiří Rusnok stressed that the country is in a far better position than when the global financial crisis hit in 2008.

“We do not have a complete prognosis simply because is not technically possible. However, it is clear that there will be a sharp economic downturn. To say today whether in the coming 12 to 18 months economic growth will drop to zero, or even fall into negative territory, is difficult. But for every day that an emergency situation continues, the probability of a worse scenario increases.”

The Czech currency has now weakened to above CZK 27 to the euro for the first time since the central bank intervened to prop it up in April 2017. Rusnok said the central bank was ready support the Czech crown further in the event of extreme exchange rate fluctuations and further cut interest rates if need be.

Many businesses are clearly already feeling the pinch. Industry and Transport Minister Karel Havlíček told journalists after Monday’s cabinet meeting that COVID Loans programme had received 437 applications for loans ranging from CZK 500,000 to CZK 15 million.

As of Tuesday afternoon, the number of applications had more than doubled, with 900 companies – mainly operators of restaurants, hotels and travel agencies – seeking no-interest loans totalling CZK 2 billion, nearly half a billion crowns more than now set aside.

Photo: ČTK/Michal KrumphanzlPhoto: ČTK/Michal Krumphanzl Jan Bureš, chief economist for Patria Finance, argues that the government stimulus package is too small. The later the state moves to help struggling businesses repay loans, the greater the ultimate cost, due to the “snowball effect”, he said in an online presentation on Tuesday.

Should the coronavirus crisis last more than three months, among the first outside the services sector to suffer will be big borrowers such as real estate firms will also suffer, Bureš said.

“At minimum, another sector at risk is real estate. Virtually every store in the services sector now forced to close is paying rent. Others in business centres could also be shuttered, and if the shock lasts longer, these negative effects will ripple through the industry.”

Meanwhile, on the European level, Czech Minister for Regional Development Klára Dostálová is calling on the European Commission to extend the possibility to use EU subsidies in the 2014–2020 programming period by a year. That would give Czech firms another source of money to tap into.

As for liquidity and ensuring the money supply, the Czech National Bank -- as a preventive measure – on Monday amended rules introduced to support the domestic financial market during the global financial crisis. The central bank notes it now has 30 percent more cash reserves than during that crisis.

17-03-2020