After the tsunami of regulations aimed at controlling the spread of COVID-19, many businesses and individuals are faced with the prospect of economic collapse. The government has taken action. But according to Vladimír Dlouhý, President of the Czech Chamber of Commerce, four-fifths of companies and self-employed people are already experiencing problems and he is calling on the government to spend an additional 40 billion crowns. Photo: Stock photo / Freepik.
Brno / Czech Rep., Mar 19 (BD) – Last week the government took action by releasing CZK 600 million through the Czech-Moravian Guarantee and Development Bank. They were offering businesses interest free loans of between CZK 500,000 and 2 million. These were to be targeted at ‘small and medium’ sized businesses. By Monday Industry and Transport Minister Karel Havlíček said that the COVID Loans programme had received 437 applications ranging from CZK 500,000 to CZK 15 million. But the most vulnerable group, freelancers and the self-employed were not helped by this as CZK 500,000 is far above what most of them need. So on Monday the government released another CZK 1 billion in interest-free loans under the COVID loan scheme and this group also became eligible.
At the same time, the Czech National Bank, following an extraordinary monetary policy meeting, announced it had cut key interest rates by 50 basis points to 1.75 percent to mitigate the economic impact of the coronavirus. Before coronavirus, Czech GDP was forecast to grow 2%. Now according to Czech National Bank governor, Jiří Rusnok, “We do not have a complete prognosis simply because it 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 the emergency situation continues, the probability of a worse scenario increases,” as quoted on Czech Radio on Tuesday.
By Tuesday the Czech currency had weakened to around CZK 27 (27.8 as of Thursday) to the euro – the first time since the central bank intervened to prop it up in April 2017. Rusnok said the central bank was ready to support the Czech crown further and cut interest rates again if needed.
Many, however, are saying much more is needed. Vladimír Dlouhý, President of the Czech Chamber of Commerce said ‘ The protection of business people against bankruptcy should be one of the utmost priorities of the State.’ The chamber had conducted a flash survey amongst its members and found that 80% of respondents were experiencing difficulties connected with the coronavirus emergency. Only 49 percent of businesses questioned by the survey said that they will try to continue paying all suppliers on time. Nearly a fifth said that it was impossible to make any of their payment deadlines. Other problems were also highlighted , such as the lack of respirators and face masks. Over half would be most helped by the deferment of payments to the state and compensation for payments to staff in quarantine.
As a result Dlouhý wants the government to spend an additional CZK 40 billion over the next three months. He welcomed the government’s moves to ease the tax burden by allowing various payments to be deferred. Many will be helped by the announcement that the deadline for natural or legal person’s income tax returns has been extended to 31st July. The full details are here (in Czech).
Jan Bureš, chief economist for Patria Finance, quoted on Czech radio also thinks the government needs to do more to prevent the crisis spreading beyond the currently suffering service sector. He highlights the risk to the real estate sector. ‘Virtually every store in the services sector that is 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.” These real estate firms are also big borrowers.On a more positive note, Governor Rusnok pointed out that the country is in a better state to weather this storm than it was in the crisis of 2008. The central bank reserves are 30% higher than at that time.
The government also appears to be listening. The Czech government could support Czech businesses hit by the effects of the coronavirus crisis to the tune of up to CZK 1 trillion, Prime Minister Andrej Babiš said on Wednesday. Speaking after the cabinet meeting , Mr. Babiš told journalists that the figure could include CZK 100 billion in direct aid and CZK 900 billion in guarantees. Although at the moment there is no detail about who would qualify.
