Many have claimed these are long overdue, but the Czech Government currently working as a coalition have released it’s predictions for the period up to 2017. Overall it’s a fairly optimistic outlook, with public spending recovering without any increase in debt levels. It is expected that this increase in public spending will largely be covered by higher growth levels. There was some expectation about information on various efficiency drives and cost cutting initiatives promised by the coalition – unfortunately there was little about these.
For anyone who follows Czech economics and politics there will be little surprise that one of the hot topics is that of the level of Value Added Tax (VAT) being set. This has been a major source of disagreement between the parties who make up this coalition. It is thought that there will be some sort of agreement with a plan to introduce a lower level of VAT in the near future. In the interim period is it expected that the current rates will drop a single point to 14 and 20% respectively. Many want these drops to be much higher as well as simplifying the current rates into a single VAT and removing the lower and higher rate levels.
Growth figures look encouraging yet unspectacular, it is hoped that the Czech economy will grow by 2.0 % in the 2015 period. This is up a few ticks from the current growth rate of 1.7%, public deficit figure currently are running at 18 and look set to rise over the next year before falling back to a manageable 1.7% of GDP in 2017.
There are specific reasons that public spending has jumped over the last 12 months. One of the major reasons is the end of certain measures in the country’s austerity programme. This year sees the end of a public sector pay freeze, and increased wage settlements will pay a large part in the increase in the levels of the public deficit rise. There are also several large infrastructure projects being initiated over the next few years, some of these supported by EU grants and loans. Some of the most important are directed at increasing the country’s telephone and broadband infrastructure. This is especially important as there is a growing need to support the digital marketplaces and economy – there are many encouraging start ups which could end up being the next Facebook or Twitter!
For anyone who takes an interest in global economics, our eyes have been largely looking at Western economies for tales of woe, stagnation and debt for some time. But there are signs that this situation may be starting to reverse.
From our last post highlighting the recovery in the UK and some of the European countries we know turn our eyes to Asia where this week the major share indices all took a tumble.
The problem seems to have come from the economic data being released from the two big players in the Asian market – China and Japan. Both reports seem to be pointing towards a slowdown in the area. The Hang Seng fell by nearly 2% and the Nikkei index closed down around 1%.
So what was in these reports to cause such a steep fall? Well although it was not much of a surprise given the situation Japan finds itself in, the record deficit reported was still larger than expected. What was probably more damaging though was that it’s 2013 growth estimates were revised down to combine with this bad news.
The startling figure in the Chinese figures was the fall in it’s export levels – a huge drop of 18%. There were very few analysts expecting a fall of this magnitude and the markets took the news very badly indeed. The Asian sell off was swift and heavy and even took down the linked Australian share index down 1% too. There’s an interesting piece on the Newsnight programme currently available on the BBC website – I use this to watch BBC Iplayer in Ireland and
Most of the big miners took a hit, companies like BHP and Rio Tinto supply the raw materials that fuel the growth in the Asian market particularly China. The hits were inevitable simply because the values of the metals fell in line with the news, copper fell to it’s lowest level since early last year. Iron ore futures and steel also both dipped sharply in response to the publication of the data.
China is beginning to feel pressure on all fronts economically, and even reported that very rare event a trade deficit of about $22 billion dollars in February, only twelve months ago the corresponding figure was another surplus, an enormous switch in fortunes. This is a sharp warning that the economic advantages that China has built it’s growth on are beginning to wane, you can only manipulate your currency value for so long and the competitive advantage of lower labour costs don’t last forever as an economy adapts.
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The credit rating of any country is obviously vastly important, if you want your economy to grow – credit is essential and the cost of that is determined by the ratings assigned by the various credit agencies. Last month Ukraine was hoping for some small improvement in their overall standing however Standard and Poor reiterated the current Junk credit rating. Worse still the respected agency modified the economic growth prospects of the former Soviet republic which could mean there is worse news to follow.
The rating for Ukraine currently averages out at ’B’, which is over four steps below investment grade. While the outlook is negative there is only downward pressure on the rating and hence the investment prospect for Ukraine. Experts predict there’s probably a one in three chance of a further downgrade in the rating unless the Government can bring in some foreign currency to service Ukraine’s substantial debt.
It’s not all bad news, there have been frequent discussions with the IMF on the possibilities of a substantial loan to secure the country’s economy. Ukraine even recovered from recession in the first quarter of this year and GDP actually rose half a percent. This recovery has already weakened though, this is partly due to many parties awaiting the proposed IMF bailout.
So what’s the problem with Ukraine? There are many positives in the economy and certain sectors which are beginning to boom. Ukraine has many digital and technology businesses which are doing very well. If you get yourself a Ukrainian proxy like this to access the main digital sites you’ll see some impressive success stories.
It’s opportunities like this which perhaps will help a lot of countries like Ukraine. The global digital economy can be a significant factor in bringing employment and opportunities, many of the old USSR countries have extremely high levels of education which benefit this sort of development particularly. You can see other options in this video which explains how to bypass geographical blocks online.
The problems are unfortunately all too familiar, weak foreign demand for it’s major exports are at the core. The metals and machinery which Ukraine companies are famous for are simply not required with the rest of Europe in similar recessionary situations.