I know. Forget about the official forecasts of countries, international institutions or influential participants of the world economy (i.e. banks). Really. Compare any forecast for any given country one year or even a few months ago with actual developments and current forecasts. For that matter, compare the judgments of certain posters at CFC who were and are praised for their economic knowledge with what was happened. I can think of only very few posters who really saw the mess coming relatively early. The same holds true for forecasts and mainstream economists.
On the other hand, I see no reason to despair and produce one bad forecast after another. We're now in the "everything's falling apart" phase, which makes people do wrong predictions just as the "everything's fine" phase of the cycle.
At this point just about every country or region important for the few countries in Europe who held up well (yes, Poland and Czech Rep. rank among them) are in recession. Western Europe, Asia (including China), the US, just about every economy contracts, at least on quarter-on-quarter basis. This will have a severe impact on the remaining growing economies. Add to that that the financial sector in these countries is controlled by Western banks who are in fact all bankrupt.
From what I've been hearing in the news, all Czech banks are doing fine for now, still making profits. That would mean we survived the stage one - the financial crisis. We can't do anything with the stage two - the economic crisis, but since we didn't have to bail out banks and thus de facto nationalize the banking sector, I believe we are in better position to cope with it.
Just today, the PM's advisory council (its abbreviation is NERVE
) came with some draft plan of anti-crisis measures. Most of them look realistic - no
"let's make the deficit 10 times bigger by lowering VAT" nonsense, the government plans to invest more into the education, regional infrastructure, R&D and companies should have easier access to gov. subsidies for perspective projects. Finance minister had the audacity to say publicly that this crisis may be an opportunity to clean up the economy
Don't worry about unemployment. It's going to rise soon enough. It takes a while before slowing growth feeds trough. For example, it took three quarters of GDP contraction before unemployment started to rise in Germany. This however is an extreme case. But it's not even important whether Poland or any other fast growing economy will meet the criterion for a technical recession or manage to maintain growth rates above 0 %. These so called 'dynamic' economies will feel the full impact in terms of rising unemployment, growing public deficits etc. even with growth rates that for many developed economies would be considered normal or above trend growth. Think about China as an extreme example where 6 % of GDP growth is considered to be a recession.
I think we can handle 1-2% rise in unemployment, that would leave us with unemp. rate of 6-7%. It's not like there will be a massive rise returning us back to late 1990s and double digit numbers.
So indeed, I do believe that the good times are over in Eastern Europe as everybody else is suffering too. Some comprehensive statistical data for Poland and the Czech Rep.:
Poland:
http://polandeconomy.blogspot.com/2009/01/forex-lending-crunch-means-trouble-is.html
Czech Rep.:
http://fistfulofeuros.net/afoe/economics-and-demography/how-near-is-the-czech-economy-to-recession/
It really matters little for anyone whether the jobs are going to Poland or to Asia. The people affected still lose their jobs and the rest of the population really doesn't care whether some Polish city benefits or a tiny island in the Pacific ocean. The people will be angry one way or another. From a very distant strategic perspective you could say that it's good that the jobs at least stay within the EU. But nobody applies this logic, not even the starter of this thread. It's rather the point of view that makes the EU so dislikable for many of its citizens.
Meh, people will never understand that when the country gets rich, it simply loses the competitive edge in some of the less-sophisticated branches of industry. Ireland would lose this investment one way or another. This way it at least stays in the EU so the EU doesn't lose everything. I am not expecting that the fired workers in Ireland will understand that.
I also am very sceptical about the (tax) competition within the EU. I'd argue that it has a lot more impact than the so called globalisation on European economies. While overall tax revenues and government spending are not falling we can see that the share of corporate tax revenues on total tax receipts have fallen considerably in the last decades. We can phrase that differently: workers (i.e. the large majority of the population) increasingly have to carry the tax burden whereas 'capital' gets to be taxed less and less.
Isn't that logical? Less taxation means more economic activity, more economic activity means more jobs and greater revenues (thus also the shareholders profit), more jobs and greater revenues mean more money for the state. Looks fine to me.
Of course you can't lower the corporate taxes too much, but there is no point in keeping them so high as in many Western European countries. If the collected taxes are used mostly to pay for the extensive welfare systems, then it makes sense that it's the people who has to pay for it - isn't that how Scandinavian countries work?
