Report Shows How Much Confidence in the Economy Has Crashed

Figures just issued by the Czech Statistical Office (CSO) show that the combined consumer and business confidence in the economy index fell by 19.6 points to 74.8. The figure for Business dropped 19.3 points to 73.8 and for consumer confidence dropped by 20.4 to 80.1. The last figure was the biggest year on year fall since these figures started to be monitored. They will provide a benchmark going forward. Photo credit: Freepik / For illustrative purposes.

Czech Rep., Apr 27 (BD) – As the government begins to relax the lockdown, businesses are anxious for things to get back to ‘normal’. But figures from the CSO give an indication that this may take some time. The business cycle and consumer confidence surveys are conducted regularly to evaluate whether the feeling is optimistic or pessimistic about the future. 100 points is the long-term average going back to 2003. The combined measure of 74.8 points is the lowest recorded since 2003. This is hardly a surprise and many of the breakdown figures show record falls both against last month and April last year.

In the last economic crisis these indices reached their lowest point in February 2009. Business confidence took nearly two years to return to trend, but consumer confidence took nearly five years. This month’s figures are not surprising and tell us little today that we don’t already know. Their importance will be as the benchmark against which we can measure future progress.

This crisis has no precedent so you can see a range of scenarios predicted by experts, from a ‘V’ shape (a quick bounce back), a ‘U’ shape (a more gentle return to trend) or an ‘L’ shape (a depression). The Czech-American economist, Jan Švejnar, who advises the government, told E15 that he sees opportunity. He thinks that the Czech Republic should take advantage of the situation, “but it requires a fundamental tax reform, strong investments in infrastructure, a substantial streamlining of the state administration and the legal system, and the creation of conditions for a digital economy based on quality education, science and research.” Others are more cautious highlighting the length of the lockdown and the liquidity problems that many businesses and families are experiencing. Petr Král, director of the monetary section of the Czech National Bank in an interview says that due to these factors “[the recovery] won’t be as strong as we all would probably wish.”

45% of the businesses cited lack of demand, which must be mostly attributable to the crisis. Photo credit: Freepik.

Consumer Confidence fell 20.4 points to 80.1, which is the largest fall since monitoring began. Concerns about the deterioration in their own financial situation, the overall economic situation and, in particular, rising unemployment in the next 12 months increased significantly. They were less inclined to save and were concerned about rising prices. Confidence compared to April last year was also significantly lower, also by a record amount.

In industry there was a 16.6 point fall to 72.0. Stocks of finished goods are higher and respondents expect a significant slowdown in the rate of production and consequently employment expectations are lower. 22% indicated that the main barrier to production is the current extraordinary emergency measures and 45% of the businesses cited lack of demand, which must also be mostly attributable to the crisis. Importantly, they describe the economic outlook as significantly worse not just in the next quarter but for the next six months.

The quarterly manufacturing report in April showed that only 69% of productive capacity was being used, which is also the lowest figure since the survey started. In addition, businesses only have contracts for 10.4 months work which is less than the same quarter last year and only includes about two weeks of the lockdown.

The trade (mainly retail and wholesale) sector produced its worst figure, dropping 14.4 points to 85.4. Photo credit: Freepik.

The survey of business investment which was taken before the full effect of the lockdown had been felt, showed that companies already expected investment to fall 15% against last year. Moreover, this would be focused more on production facilities and less on acquiring new technology.

Confidence in the construction sector month-on-month fell 11.7 points but was still above trend at 107.3 points. Overall expectations with regards to demand were lower than last month and to employment significantly lower. Year on year confidence in the sector was also significantly lower. The main barriers to growth indicated were shortage of staff, (37%) and insufficient demand (22%).

The trade (mainly retail and wholesale) sector also produced its worst figure, dropping 14.4 points to 85.4. The assessment of the overall economic situation decreased compared to March and expectations for the next three months are significantly lower. Confidence is also significantly lower than in April last year. In the service sectors (including banking) monitored, confidence fell month-on-month by a record 23.7 points to 70.5. Not surprisingly, as this sector is hardest hit by the government crisis restrictions, current demand has significantly decreased. Looking to the future, both three months and six months, expectations for the overall economic situation are significantly lower. Around 32% of the entrepreneurs chose unspecified barriers to growth, but their comments made it clear this mostly meant measures related to the state of emergency. Year-on-year confidence is also significantly lower.

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