Generali SpA


    Interview with Miroslav Singer: Good Times will continue in 2018

    Interview with Miroslav Singer, Director of Institutional Affairs and Chief Economist of Generali CEE Holding

    In 2017, the Czech economy showed extremely good growth. At the same time the Czech National Bank decided to exit from the exchange rate commitment and to tighten its monetary policy through a gradual increase of interest rates. Miroslav Singer, former Governor of the Czech National Bank from 2010 to 2016, and current Director of Institutional Affairs and Chief Economist of Generali CEE Holding, explains the outlook for the Czech economy.

    2017 was a crucial year for the Czech monetary policy as well as for the economy as a whole. In April last year, the Czech National Bank (CNB) exited from its exchange rate commitment that had maintained a stable exchange rate to the Euro since November 2013. Inflation increased over the inflation target of 2 percent per annum, however it remains within the tolerance levels. As a result of this the central bank decided to gradually increase interest rates. This monetary policy is acceptable thanks to the excellent state of the Czech economy which in 2017 showed a growth exceeding 4 % of GDP.

    Miroslav Singer, the Director of Institutional Affairs and Chief Economist of Generali CEE Holding, who headed the central bank from 2010 to 2016, discussed the situation in the interview for the Yearbook of the Italian-Czech Chamber of Commerce and Industry.

    The economic growth in 2017 was stronger than most analysts had expected. What are the principal factors that contributed to the success of the Czech economy?

    Basically, all aspects of demand have contributed to this year’s success. Economic growth was therefore driven both by local factors, consumption of households and government, and also by investments and net export. Czech export benefited from a general growth of the global economy and in particular from the return to growth of the economies of the EU and the Eurozone.

    And what is your prognosis for 2018?

    The good times will continue - a fair growth in GDP of over 3 %, and inflation slightly above 2 %. The Czech economy will experience another year of growth without any significant imbalance jeopardising this growth.

    At the end of 2017, CNB announced a gradual return to its neutral monetary policy. Can we therefore expect that the restrictive monetary policy will continue throughout 2018? And, in your opinion, are the fears of the mortgage market overheating justified?

    I expect that the CNB will continue to increase rates, hand in hand with the state of the Czech economy. As for the mortgage market overheating, this rate increase is basically a preventive measure taken against any potentially serious situation. However measures focused on slowing down the growth in the mortgage market could have been anticipated.

    You were in the position of Governor when the CNB started its intervention against the Czech Koruna (CZK). How do you retrospectively assess this decision? And why was deflation such a threat for the Czech economy?

    With respect to the fact, that in addition to CNB many other central banks also adopted non-standard measures to increase demand and prevent deflation, our economy did not experience any real deep periods of deflation. If this had happened, a dramatic decline in demand caused by the financial crisis – in connection with a deeper decline in prices – would further increase any negative conditions we had already experienced, such as stagnation of wages, record unemployment, short-time working and a drop in investments. This would further complicate the situation of many households and companies because when prices and income decline, there is one nominal value which will remain unchanged. This value is represented by debts which would still have to be repaid at the original and unchanged amount.

    Prior to the parliamentary elections, the topic of adopting the Euro came up for discussion again. In the treaties of accession, the Czech Republic undertook to enter the Eurozone, however there has been no fixed date set for this. Is it possible for this uncertainty to continue into the future?

    Surely it is, and with no problems at all. We have been experiencing this situation for a long while and nothing is happening at the moment.

    In the insurance business, the premium written is growing at several percentage points each year. Can we say that in the Czech Republic the insurance industry is a mature industry? Or are there still opportunities for dynamic growth?

    The insurance business has experienced dynamic growth and my opinion is that there are still many opportunities for further growth. Some new opportunities will be brought by the growing economy and will also bring a return of interest rates into the higher positive values.

    In the previous election period, members of parliament tried in vain, on more than one occasion, to implement changes to the selling of insurance products. The elections have now strongly changed the Chamber. Do you have any proposals for parliamentary changes that you would like to enforce?

    In this case it is about the negotiations at the level of the new political representation and association of insurers. However, much will depend on the new government and the composition of the coalition.

    In 2018 a new package of European regulations will come into force. Should clients worry about more paperwork?

    Unfortunately, there definitely will not be less paperwork and administration. However we will do our best to see that our clients do not have too much to worry about on that aspect.