Economist Švihlíková: The countries that protected people's lives and health are doing best

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Covid-19 has changed the world, a return to the beginning of last year will no longer be possible. The Czech Republic should therefore also think strategically about the future. Economically, the best performing countries are those that put the protection of people's health and lives in the first place, economist Ilona Švihlíková told Práva.

The pandemic triggered an economic crisis. How quickly will the Czechia and the whole world get out of it?

The pandemic will help to increase disparities between countries. A key factor is the effectiveness of governments in tackling the pandemic, and it turns out that the West is disastrous in this respect compared to many Asian countries. We are currently seeing the best performers in those countries that have never embarked on a perverted trade-off between deaths and GDP growth, and have clearly put the lives and health of their citizens first.

I do not see any strategic considerations for the future, but rather an effort to anchor in a dependent economy

These countries are doing best economically as well. In the next stages, it will be important to realize that pandemics and wars are changing the world. Those who understand that we will never return by February 2020 will be a little ahead again. Unfortunately, I do not see any strategic considerations for the future in the Czech Republic, but rather an effort to anchor oneself in a dependent economy that is cheap and sufficient.

Some economists have called in recent weeks for industry to shut down in the short term to bring the pandemic under control. According to them, it would ultimately do less damage than endless half lockdowns. What do you think about it?

Above all, I think that anti-pandemic measures should be decided by epidemiologists and doctors, not by economists. What I said at the beginning is that we are still following the shift between the death toll and the state of the economy, which is a trade-off that does not really exist.

Non-compliance and low law enforcement also play a major role. Just look at the restaurant Šeberák. After all, the state is not even able to take away the owner's trade license! The inability to learn from mistakes is evident in the fact that in a situation where we have 15,000 infected a day, there are poems about further disintegration.

We did not have to get into a situation with more than 20,000 dead at all. We owe the fact that we do not have even more dead with such a huge number of infected, thanks to our resilient healthcare and the very extraordinary commitment of medical staff.

The accompanying phenomenon of any economic crisis is high unemployment. Its growth is now hindered by programs such as Antivirus. But where will it go when this state aid ends?

It is not clear whether a permanent program will continue after the termination of Antivirus programs, according to the German Kurarbeit. But even if it is not, then today we can certainly not claim that the labor market would stand.

A more accurate analysis is hindered by the fact that the number of officially reported job vacancies seems to be strongly overestimated and mostly associated with a minimum wage and low qualifications. It is clear that many sectors need to undergo structural change, such as tourism or transport, so I would emphasize the need for an active employment policy.

Many people from the affected sectors will find work. But do we really want them to go down with their qualifications and work for the minimum wage? Isn't it better to work with those people and help them apply in other emerging fields? But instead, low wage fixation is already underway, heavily supported by another influx of cheap labor.

Which sectors will be the worst off in terms of unemployment?

These will be mainly those sectors that have been tied to foreign clients. We will not return to the numbers in which tourists visited this country. It will be felt by tourism, transport, hospitality and related fields. However, this does not mean that there are no opportunities for development, and especially for improving the quality of domestic tourism and the local economy.

Charging part of public services with the so-called salami method may be one of the likely scenarios

What development do you expect in wages? The average wage in the Czech Republic is CZK 39,000. But isn't it mainly due to the fact that last year mainly low-income employees lost their jobs?

If you cut off the one with the lower wage from the data set, it will drive you out of the average. I am afraid that a number of companies have stopped wage growth, as LMC analyst Ervín Dombrovský recently informed. After all, the abolition of the super-gross wage means that the concern for raising wages has been taken over by the state. This is really not a good policy for the organic wage development that we desperately need as a converging economy. However, it is still the case that in some fields, especially those related to the digitalisation of the economy, wages will rise.

Inflation was 3.2 percent last year. Should Czechs expect further price increases? What items drive inflation up the most?

In most developed countries, deflation, not inflation , is a long-term problem. The problems are more like bubbles of various assets, bitcoin is a good example. In the Czech Republic, I am afraid of rising food prices also due to our increasing food insecurity.

The pricing policy of the chains deserves a separate analysis. Flats can also be an investment asset that can be perceived as a hedge against higher inflation, in addition to gold. Inflationary pressures may also intensify in the short term as households increase consumption of goods and, in particular, services in sectors where this is not currently possible. Inflation expectations, which may increase in a turning point in the economic situation, may also play a role.

Interest rates remain low, the situation is uncertain. Is it worth saving people at all?

We are seeing an increase in savings in the economy, which is certainly not due to attractive interest rates, but simply to fears for the future. The increase in household deposits was a record last year. Part of this is also deferred consumption, which is likely to take place as soon as epidemiologically possible. However, it must be remembered that savings are very unevenly distributed in the economy. Low-income households are often unable to generate any savings at all.

One of the important means of support for companies is to be bank loans with a state guarantee. But it doesn't work very well yet. Why? Do companies not need it or do banks not want to provide it?

Estimates of the lack of liquidity in the economy, which appeared last spring, were obviously very overshot. Trillions flew through the air, and it is possible to ask whether these "models" did not hide the interests of some economic entities. The corporate sector as a whole has slowed down investment, which is understandable. The overall view is that deposits from the non-financial sector exceed loans, which speaks for itself.

Trade unions and the CSSD warn against growing state indebtedness, which according to them may lead to a reduction or privatization of public services. Do you think the situation will go so far?

A number of tax changes that took place in a state of legislative emergency last year necessarily lead to an increase in the structural deficit. These are not primarily government support programs that will end with a pandemic, but a long-term ax on the state budget revenue side . These fundamental and major tax changes were approved as permanent.

In many cases, such as the abolition of the property acquisition tax, they had nothing to do with the pandemic. It is about 200 billion crowns and any other government will have to stand up to it. My experience from the past leads me to undoubtedly find public goods in the search engine, because elsewhere you want to take such a large sum. I think that charging for part of public services by the so-called salami method may be one of the likely scenarios.

Note: The article based upon the Czech Republic media interview